Private sector credit extension grew by a modest 1.8% year-on-year (y/y) in July 2024, maintaining the same pace as June but slowing from the 2.6% y/y growth recorded in July 2023, latest data shows.
According to recent data from Simonis Storm, while the growth stands as the third-highest rate this year, the year-to-date average growth of 2.0% represents the weakest credit expansion for the first seven months of any year.
“However, the year-to-date average growth of 2.0% highlights a concerning trend, as it represents the weakest period for credit expansion within the first seven months of the year over our two-decade dataset. This sluggish credit growth, combined with persistently high levels of non-performing loans, raises concerns about the overall health of the financial sector,” the report says.
The research firm reported that credit extended to businesses, which accounts for 38% of total credit, showed slight improvement, increasing to 0.8% y/y in July from 0.5% in June.
This represents a recovery from the negative growth of 1.2% y/y observed in July 2023. However, mortgage loans continued to decline, and overdrafts deteriorated sharply, registering a significant negative growth of 23.3% y/y as corporates focused on debt repayment.
“Overdrafts, however, worsened significantly, registering negative growth of 23.3% y/y in July 2024, a sharp contrast to the 6.8% y/y growth recorded in July 2023, as corporates focused on debt repayment. Despite being the smallest component of credit extended to businesses, the instalment and leasing category remains vital in maintaining corporate credit,” the report reads.
On the positive side, Simonis Storm reported that instalment and leasing credit to businesses grew by 26.7% y/y, driven largely by the recovering tourism sector, particularly the car rental industry.
It said tourism is now showing substantial signs of recovery, with increased passenger arrivals and higher occupancy rates at hospitality establishments.
“Supporting this positive trend, a total of 1,172 new vehicles were sold in July 2024, exceeding pre pandemic levels. Notably, rental agencies purchased 141 new vehicles, a significant increase compared to 54 units sold in the previous month,” the report says.
In contrast, household credit growth slowed to 2.5% y/y in July 2024, down from 2.7% in June and significantly below the 5.5% y/y growth recorded in July 2023.
Overdrafts and other household loans also experienced declines, while mortgage loan growth remained steady at 1.9% y/y.
“Meanwhile, mortgage loan growth remained steady at 1.9% y/y, consistent with the previous month. In contrast, instalment and leasing credit saw a modest increase of 6.9% y/y compared to the prior month, suggesting that, despite minimal growth, there remains some appetite for financing durable goods or vehicles,” the report reads.
