Household Sector – July household sector credit growth


July Household Sector Credit growth slowed further, continuing to point to a possible further decline in the Household Debt-to-Disposable Income Ratio despite household income growth pressure

Given the possibility that Household Sector Disposable Income growth has slowed further in the 2nd quarter of 2014, it remains crucial that Household Sector Credit growth be contained to low single-digit growth. This is important, in order that Credit growth remains below the lowly nominal Household Disposable Income growth rate, so as to contain South Africa’s still-high Household Debt-to-Disposable Income Ratio and thus its vulnerability to interest rate hikes.

The monthly release of July SARB Household Credit data suggests that for the time being, this probably continues to be the case. The June Household Sector Credit growth rate was 4.1 year-on-year, slightly lower than the 4.30% of the previous month.

This slow growth rate has been the combination of slower growth in non-mortgage credit categories since 2012, along with a pedestrian rate of growth in overall mortgage advances outstanding.

With new Residential Mortgage Lending growth quite strong in recent times, though, a potential source of upward pressure on Household Credit growth in the near term could be the growth rate in overall Residential Mortgage Loans Outstanding, which  may experience a gradual acceleration, thus causing the overall Household Sector Credit growth to begin to slowly rise not far from the current time.

Indeed, the other another number to be released today was Total Mortgage Loans outstanding. Although this figure includes Commercial Mortgage Loans, residential loans dominate it, and an acceleration in its growth rate from 3.4% in June to 3.7 % in July does partially reflect the strong recent growth in new residential lending. This is therefore as risk factor to monitor.


Nevertheless, our forecast is for Nominal Household Disposable Income growth to hover around 7% through 2014/2015, which is still expected to translate into a further mild decline in the Household Debt-to-Disposable Income Ratio through this forecast period.

This Household Sector Disposable Income growth forecast is not without its risks, currently, as they country’s total wage bill growth rate slowed further to 6.5% year-on-year in the 2nd quarter, and the wage bill is by far the largest driver of overall disposable income growth of households. However, we do expect some mild strengthening in economic growth from here on, which is expected to arrest the further decline in the nominal wage bill growth rate.

However, while the containment of the Debt-to-Disposable Income Ratio would be a healthy development, we don’t expect it to be sufficient to prevent some deterioration in Household Sector credit health through 2014/15.

We anticipate some near term deterioration in credit health due to expectations of gradually rising interest rates.

The CPI inflation rate in July was 6.3%, outside of the SARB’s (Reserve Bank) 6% upper target limit, and indeed, the SARB (Reserve Bank) continues to hint at a need to “normalize” interest rates after what could be termed a period of abnormally low interest rates.

Our expectation is for Prime rate to rise mildly to 9.5% by year-end, and further to 10.25% by the end of 2015.

Should all of this transpire, it promises to take the Household Debt-Service Ratio (the cost of servicing the household sector debt burden expressed as a percentage of disposable income) slightly higher, despite the projected decline in the Debt-to-Disposable Income Ratio, which in turn would likely cause Household Sector credit health to deteriorate mildly.

The Debt-Service Ratio moved broadly sideways from 2012 to 2013 after a prior declining trend from 2009-2012. This ratio is usually a good predictor, or explanatory variable, of trends in insolvencies and other indicators of credit health. From here onward, rising interest rates are expected to take the Debt-Service Ratio mildly higher. Our forecast is therefore for the Debt Service Ratio to rise gradually from an average of 7.7% for 2013 to 8.7% by 2015.

With this rise is a projected increase in insolvencies, showing growth of 1.4% in 2014, compared with 2013, and then a further 7% rise in 2015.

This would represent a far more mild deterioration in household sector credit health this time around compared to the 2008/9. This is in part due to our expectations of a more mild interest rate hiking cycle than previous cycles. However, it is also because, although the Household Debt-to-Disposable Income Ratio remains high, at 74.5%, it has declined significantly off the high of 83% back in early-2009, reducing the household sector’s vulnerability.

Crucial, though, is for households to continue to do the right thing, i.e. for household credit growth to continue to grow slower than disposable income, which would prevent any rise in the debt-to-disposable income ratio.


For the time being we see little additional negative impact on Household credit health emanating from the first 2 interest rate hikes in 2014.

On a year-on-year basis, the number of insolvencies, as recorded by StatsSA, declined by -10.7% in the 2nd quarter of 2014.


Photo Caption: John Loos, Household and propertysector strategist. Photo courtesy of