By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The South African consumer credit market experienced moderate growth in 3Q24 (2.8% q/q), reflecting a mix of resilient demand and persistent financial strain. While this represents a slowdown from the 5.5% growth in Q2, it signals a potential cyclical turning point in credit supply, with a 1.0% y/y increase compared to a 1.6% contraction in 2Q24. That said, lenders remained cautious, as shown by high credit rejection rates (67.6%, down slightly from 68.0% in Q2). In this piece, we analyse the latest National Credit Regulator data.
Affordability drives diverging trends in asset-backed credit
Despite improved sentiment, new mortgage lending retreated slightly (-0.8% q/q), suggesting affordability remained a key concern, particularly as this data predates the September rate cut. In contrast, secured credit (91.9% vehicle financing) grew 8.0% q/q, driven by demand for affordable Asian brands and a thriving second-hand car market (Figure 1). Within the secured credit segment, financing for furniture also rose by a robust 6.0% q/q, mirroring a 7.6% q/q surge in furniture sales, indicating reliance on credit for household goods.
Unsecured credit: Debt concerns and short-term pressures
While new unsecured credit grew slightly by 2.7% q/q, total unsecured debt shrank by 1.6% q/q and 3.4% y/y, indicating debt management issues. The default ratio for unsecured loans was at 23.7%, up from 23.0% in Q2, the highest on record (Figure 2).
Credit facilities (credit cards, store cards, and bank overdrafts) showed mixed results. While the total value granted decreased slightly by 0.5% q/q, it grew by 6.4% y/y, reflecting continued reliance on revolving credit. Slowing momentum likely reflects stricter lending standards by lenders in the face of rising defaults (13.3%, up from 12.9% in 2Q). Short-term credit, on the other hand, experienced a sharp increase of 5.3% q/q and a substantial 23.7% y/y rise (Figure 1). This suggests continued financial distress in certain segments, with consumers increasingly relying on short-term loans to cover daily expenses. While offering immediate relief, the high interest rates associated with these loans pose significant risks for borrowers already facing financial challenges.
Credit trends across banks and non-bank lenders
Banks dominate the credit market (79.3% of new loans, 85.1% gross debtors' book), with credit granted up 3.0% q/q. However, non-bank lenders continued to outperform, at 6.6% q/q, but trends varied by industry. Non-bank vehicle financing rose by 7.7% q/q, and retailers saw strong growth (6.1% q/q and 80.8% y/y) in store credit, indicating a growing shift towards in-store credit. In 2019, new retail credit was approximately half the size of non-bank-vehicles. In 3Q, these industries were almost the same size. However, "other credit providers" (micro-lenders and pension-backed lenders) declined significantly (8.7% q/q and 24.8% y/y), suggesting reduced demand or tighter lending conditions (Figure 3).
Implications for consumers
The divergent trends highlight both consumer resilience and vulnerability. While secured credit expanded in 3Q, weak new mortgage lending and higher short-term loans suggest enduring financial pressure on some households. High credit rejection rates limit access to formal credit for many, potentially driving them towards costly alternatives. While the anticipated rate reductions in 2025 may offer further relief to those with mortgages and other secured loans, the impact on expensive short-term and unsecured borrowers will likely be limited, as these products are less sensitive to interest rate fluctuations.
Looking ahead, the 4Q data will be crucial for understanding evolving borrower behaviour, especially within the unsecured credit market, following the introduction of the two-pot retirement system savings withdrawals. That said, the consumer environment has shown marked improvement in recent months, bolstered by lower inflation and indications of accelerating wage growth. Could this be the saving grace for those reliant on expensive credit? Only time will tell.
Week in review
The Manufacturing PMI declined further to 45.3 in January, down from 46.2 in December 2024, signalling continued weakness in the manufacturing sector. While the PMI business activity index rose slightly by 3.2 points to 43.5, it remained in contractionary territory, suggesting that manufacturing output may have remained weak at the start of the year. New sales orders increased by 4.6 points to 42.0 but continued to reflect subdued demand for manufactured goods. The overall PMI was weighed down by a drop in inventories to 46.5 from 50.7 and a decline in the employment index to 44.4 from 46.5. While the index tracking manufacturers' expectations of operating conditions over the near term fell slightly to 64.9 from 67.6, it was still higher than the 58.7 recorded in January 2024. This, alongside lower inventories, is consistent with our expectations of a modest recovery in manufacturing activity.
The Manufacturing PMI declined further to 45.3 in January, down from 46.2 in December 2024, signalling continued weakness in the manufacturing sector. While the PMI business activity index rose slightly by 3.2 points to 43.5, it remained in contractionary territory, suggesting that manufacturing output may have remained weak at the start of the year. New sales orders increased by 4.6 points to 42.0 but continued to reflect subdued demand for manufactured goods. The overall PMI was weighed down by a drop in inventories to 46.5 from 50.7 and a decline in the employment index to 44.4 from 46.5. While the index tracking manufacturers' expectations of operating conditions over the near term fell slightly to 64.9 from 67.6, it was still higher than the 58.7 recorded in January 2024. This, alongside lower inventories, is consistent with our expectations of a modest recovery in manufacturing activity.
New vehicle sales increased strongly by 10.4% y/y to 46 398 units, maintaining momentum from 4Q24. This was driven by an 18.3% increase in new passenger car sales to 34 530 units, supported in part by car rental sales, which accounted for 19.1% of the passenger car market. This marked the seventh consecutive month of annual growth in passenger car sales, reflecting modestly improved sentiment and reduced monetary policy restrictiveness. This trend is expected to continue as economic conditions improve, aligning with our macroeconomic projections. New commercial vehicle sales remain subdued due to a high base, but the pace of contraction is easing. In January, sales declined by 7.6% y/y to 11 868 units, following a 10.8% drop in 2024. Medium and heavy commercial vehicles, as well as buses, recorded growth in January, while light commercial vehicles and extra-heavy trucks saw declines.
Electricity production rose by 3.2% y/y in December 2024, moderating from a 6.6% y/y increase in November. Seasonally adjusted output contracted by 1.4% m/m, more than reversing the 0.7% monthly gain in November and exceeding the 1.2% decline in October. For 4Q24, electricity production registered a mild quarterly decline of 0.5%, following 2.7% growth in 3Q24. This suggests that the electricity sector weighed on GDP growth in the final quarter of the year.
South Africa's gross foreign exchange reserves increased slightly to $65.9 billion in January 2025, up from $65.5 billion in December. This was primarily driven by a rise in the value of gold reserves, which offset a decrease in foreign currency reserves. SDR holdings remained relatively stable, and the central bank's forward position saw a slight decrease.
Week ahead
On Tuesday, manufacturing production data for December 2024 will be released. Manufacturing output was down 2.6% y/y in November, following an increase of 0.9% y/y in October. Seasonally adjusted output was down 1.1% m/m, after expanding by 0.8% in November. In the three months to November, manufacturing output was down 0.2%, suggesting a potential drag on 4Q24 GDP growth. The upcoming December data could be weak, as signalled by the manufacturing PMI, which remained in contractionary terrain in December. However, it is not unusual for the PMI survey results and actual manufacturing output to reflect diverging outcomes.
On Thursday, mining production data for December 2024 will be released. In November, mining production (not seasonally adjusted) contracted by 0.9% y/y, after expanding by a downwardly revised 1.1% in October. Excluding gold, mining output expanded by 0.7% y/y over the same period. Monthly seasonally adjusted output, which is critical for quarterly GDP calculations, declined by 0.2% after contracting by 2.8% in October. In the three months to November, mining output was up by 4.0% - suggesting a potential boost to 4Q24 GDP growth.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 3 Feb | SA | Absa Manufacturing PMI | Jan | 45.3 | 46.2 |
| SA | Naamsa Vehicle Sales %y/y | Jan | 10.4 | 2.1 | |
| 6 Feb | SA | Electricity Production % y/y | Dec | 3.2 | 6.6 |
| 7 Feb | SA | Gross Foreign Exchange Reserves $billion | Jan | 65.9 | 65.5 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 11 Feb | SA | Manufacturing production % y/y | Dec | -- | -2.6 |
| SA | Manufacturing production % m/m | Dec | -- | -1.1 | |
| 13 Feb | SA | Mining production % y/y | Dec | -- | -0.9 |
| SA | Mining production % m/m | Dec | -- | -0.2 |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 87,191.22 | 1.8% | 2.9% | 16.9% |
| USD/ZAR | 18.44 | -0.8% | -0.8% | -2.1% |
| EUR/ZAR | 19.14 | -0.9% | -0.8% | -5.5% |
| GBP/ZAR | 22.93 | -0.7% | -1.4% | -3.4% |
| Platinum US$/oz. | 989.95 | 1.9% | 5.6% | 9.3% |
| Gold US$/oz. | 2,856.28 | 2.2% | 8.3% | 40.3% |
| Brent US$/oz. | 74.29 | -3.4% | -2.6% | -5.5% |
| SA 10 year bond yield | 9.73 | 0.6% | 0.8% | -9.0% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.9 | 1.9 | 1.9 | 2.1 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.1 | 2.0 | 2.2 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.2 | 3.7 | 3.6 | 4.9 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 4.4 | 4.6 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 5.4 | 4.5 | 4.4 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.5 | 18.4 | 18.5 | 18.5 | 18.9 |
