Credit demand declines

GROWTH in demand for credit by South Africa's private sector slowed sharply in the year to August to its lowest levels since 1966.

GROWTH in demand for credit by South Africa's private sector slowed sharply in the year to August to its lowest levels since 1966.

This means that despite lower interest rates households and companies' finances remain under strain.

At 2,34percent year-on-year in August, the annual growth in credit demand was at its lowest rate since May 1966, according to the Reserve Bank, from a revised 3,31percent in July.

Growth in the M3 measure of money supply also slowed to 5,49percent in the period compared with a slightly revised 5,7percent in July.

The central bank has cut the repo rate by 500 basis points to 7percent since December, totally reversing rate increases in the two years to June 2008 to try to stimulate an economy that is experiencing its first recession in 17 years.

Households have cut back on their appetite for more loans as they face high debt levels and job insecurity while companies have curbed their demand for debt as earnings take a knock.

The rate of growth in credit demand has slowed sharply since peaking in October 2006 and tighter lending rules introduced in June 2007 helped to bring it down.

Encouraged by lower interest rates, Standard Bank and Absa relaxed lending criteria.

But analysts say it will take a while before the situation improves.- Reuters

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