The country’s private sector credit extension witnessed a sluggish expansion of 1.3% year-on-year in March 2024, marking a notable deceleration from February’s 1.7%, data from Simonis Storm shows.
Simonis Storm reports that the 1.3% is a downturn from the 3.9% recorded in March 2023. The firm’s researcher economist, Halleluya Ndimulunde, said the rate represents the slowest pace of private sector credit extension growth seen in the last decade.
This comes as throughout the first quarter of 2024, the average annual credit growth further softened to 1.8% year-on-year, contrasting sharply with the 3.2% year-on-year growth observed in the same quarter of the previous year.
“The decline in March’s credit extension can be attributed to reduced demand and increased net repayments across both household and corporate sectors. Year-to-date data suggests that there are no indications of improvement in credit growth,” she said.
Similarly, household budgets continue to be challenged by rising debt repayments in the face of now-rising fuel prices.
In March 2024, household credit extension decreased for the ninth consecutive month to 2.2% y/y, compared to 2.4% y/y in February 2024 and also the lowest since August 2022.
“Household credit growth was mainly supported by growth in overdrafts with growth of 16.3% y/y in March 2024 but lower than 18.5% y/y recorded in February 2024,” noted Ndimulunde.
Corporate credit uptake persisted in its downward trajectory, declining to 0.1% in March 2024, marking the second consecutive month of decline.
Credit uptake was mainly supported by instalment and leasing instrument but offset by the rest of the debt instruments.
Ndimulunde attributed the decrease in credit growth to businesses’ lowered demand and lower repayments by corporates in the wholesale and retail trade, manufacturing, as well as financial services sectors.
Meanwhile, in the first quarter of 2024, there were mixed trends in corporate debt instruments.
Mortgage loans and overdrafts recorded declines of 4.0% and 4.7%, respectively, suggesting a cautious approach to borrowing amid economic uncertainties and tighter lending conditions.
On the other hand, other loans and advances saw a modest growth of 0.6%, indicating some ongoing borrowing activity. The most significant growth was observed in instalment and leasing, with a 22.9% increase.
“This surge likely indicates a strategic shift toward leasing, possibly driven by increased business investment preferences. Overall, while some sectors are exercising caution, others are showing resilience and growth in borrowing activities,” she said.
The researcher highlighted that dynamics within household debt instruments were equally mixed during the first quarter of 2024 as mortgage loans saw a modest growth of 1.8%, indicating continued demand for housing.
However, other loans and advances experienced a slight decline of -1.5%, suggesting reduced borrowing in non-mortgage areas, possibly due to cautious consumer spending. Overdrafts also decreased by -4.7%, reflecting a pullback in short-term borrowing by households.
“On the positive side, instalment and leasing showed a healthy growth of 5.9%, which could signal increased consumer purchases of durable goods through financing options. Overall, while there are signs of restraint in certain borrowing areas, others are showing resilience or growth, reflecting the mixed dynamics of household credit in the economy,” she said.
