Johannesburg - Household sector credit growth slowed in April as economic numbers pointed to South Africa possibly entering a recession, First National Bank (FNB) said on Friday.
The slowing growth was appropriate given the current economic outlook, household and property sector strategist John Loos said in a statement.
"From 4.8% year-on-year in March, household sector credit growth slowed further to 4.6%, the lowest level since mid-2010, having slowed from a 10.4% high in November 2012 as the unsecured lending boom tapered off," he said.
"While the slow household sector credit growth is reflective of a weak economy, it is desirable under the current circumstances, which include an economic contraction along with rising interest rates."
In order to reduce household vulnerability to interest rate hikes, the still high debt-to-disposable income ratio required very slow household credit growth.
It was also possible that nominal household disposable income growth had slowed further from its already weak 6.5% year-on-year growth in the final quarter of last year.
"One possible risk in the way of further lowering in the debt-to-disposable income ratio emanates from a gradual rise in growth in mortgage advances, where household-related residential mortgage play a major role," he said.
"While the release of the detailed breakdown of mortgage loans runs a little behind, the overall mortgage advances data for April showed a further acceleration in growth to 2.97% year-on-year."
This was from March's 2.86%, with the gradually higher mortgage growth believed to be strongly driven by household borrowing in the residential market.
"Under the circumstances, it would appear desirable for residential-related new borrowing growth to slow somewhat in order to reflect the weak economic fundamentals," he said.
"And indeed, this is what we would expect to take place in the near-term."
As such, a weak economy was expected along with a gradual rise in interest rates later in 2014 and into 2015, which in turn would raise the household debt-service ratio through 2014 and 2015.
This was the interest cost on debt, expressed as a percentage of disposable income, which would keep the lid on household credit growth.
"While interest rate hiking doesn't promise to be extreme, the weak economic conditions prevalent in the economy are likely to keep consumer confidence weak," said Loos.
This would make the household sector a little more risk averse.
Sluggish household disposable income growth was therefore expected to keep a little ahead of household credit growth, translating into a further gradual decline in the household debt-to-disposable income ratio.
The decline would be to a healthier level below 70% over the next two years or so.