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New lending by South Africa’s banks falls for the first time since 2010

(Adds details, background, analyst comments)

By Mfuneko Toyana

JOHANNESBURG, April 30 (Reuters) – Loans to South African households and businesses contracted last month for the first time in over a decade, as banks tightened lending terms and uncertainties arising from the COVID-19 crisis, high joblessness and poverty kept demand subdued.

Private sector credit contracted 1.52% year-on-year in March after expanding 2.62% in February, South African Reserve Bank (SARB) data released on Friday showed. Private sector credit last contracted in early 2010, during the global financial crisis, according to data from Refinitiv.

“The data paints a grim picture for overall credit appetite and highlights the hesitancy that corporate South Africa faces as a potential third wave (of the pandemic) looms,” said Jee-A van der Linde of NKC African Economics.

“It is imperative that South Africa ramps up its vaccination drive and gets closer to its herd immunity target quicker, so that normalcy can come sooner.”

With more than 1.5 million infections and over 50,000 deaths, South Africa has recorded the most COVID-19 cases of any African country. Its vaccine rollout has been slow, with just under 308,000 shots administered so far.

The economy shrank by 7% last year, its biggest contraction in a century according to the central bank.

The central bank responded to the crisis by slashing lending rates to a record low, but despite a boom in housing sales, consumer activity remains subdued.

The government launched a 200 billion rand loan-guarantee scheme aimed at small and medium-sized businesses but uptake has been dismal, at less than 10% of the amount available.

Some business owners said the credit requirements were too onerous, while others declined to take on new debt over concerns about future economic activity.

Strict lockdowns and other measures to curb COVID-19 infections have seen already sky-high unemployment rise further, with a record 32.5% of the workforce, or 7.2 million people, registered as jobless in the fourth quarter of 2020. That in turn has pushed up poverty levels and compounded gloom among consumers.

An emergency unemployment grant of 350 rand ($24.26) brought in by the government last year is set to end this month despite calls by civil society groups and trade unions for it to be converted to a permanent universal income grant. ($1 = 14.4300 rand) (Reporting by Mfuneko Toyana Editing by Catherine Evans)

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