Standard Bank Group expects growth in credit extension by South African banks to households and businesses to slow in coming months due to a deteriorating economic growth outlook.
Head of Credit Card Division at Standard Bank South Africa, Leila Fourie, says South Africa's economic growth outlook is looking increasingly vulnerable because of exposure to the global economic slowdown and market volatility. This is putting a damper on household and corporate confidence.
Ms Fourie says the tentative growth outlook will likely be reflected in weak consumer confidence and, thus, household consumption. As a result, Standard Bank expects household credit extension growth to progressively slow down from 4.4% in 2011, 3.4% in 2012 and 3.9% in 2013.
"Household demand was unexpectedly strong in the first quarter (5.2%) but contracted in the second quarter to 3.8%. Our outlook for the rest of the year remains cautious," she says.
As South Africa's leading credit card issuer, Standard Bank Group, has released figures around use of its credit cards in that country.
It shows consumers have opted to swipe their credit cards more often but in favour of smaller amounts. Turnover is up for all income groups with the top categories remaining grocery and department stores, followed by vehicle and lifestyle.
Even though grocery stores remain the number one merchant category for all income groups, spend has decreased year on year. Lower income groups are spending less on garage transactions.
Ms Fourie says while corporate credit extension has begun to improve on the back of an improvement in company earnings, it is also expected to remain subdued in coming months.
"Corporate spend has increased in the last 9 months, as air travel and hotels is up more than 7% from 2009 to September 2010 year to date and more than 18% from 2010 to September 2011 year to date respectively."
"We expect growth in credit extension to corporates to remain under pressure because of the deteriorating South African economy. While low interest rates are supportive of credit growth, poor economic growth and weak confidence are likely to keep credit growth under pressure in the remainder of 2011.
In addition, the labour market is making few employment gains and, as this is likely to continue, credit growth could be muted in the months ahead," says Ms Fourie.
Total credit extension to households continued to slow in August, with growth easing to 5.2% year-on-year, from 6.6% y/y in July. Corporate credit extension, however, has begun to improve on the back of an improvement in companies' earnings.
Credit cards, in general, have started growing since the beginning of 2011 and has increased 1.81% quarter-on-quarter July vs. April 2011 and 6.75% year on year from R55.735bn in July 2010 to R59.497 in July 2011.
This outlook comes as Standard Bank Group is embarking on a drive to make it easier for South African consumers to access credit in a move it hopes will help stimulate the economy, and as it sees a remarkable improvement in the levels of bad debt among consumers.
Ms Fourie says there has been a noticeable change in client debt profiles over the past 12 months with fewer consumers now defaulting on their repayments. Credit card non-performing balances have decreased by more than 26% for September 2011 in comparison to September 2010. Credit loss ratios are down from a high of 10% in December 2008 to 1.55% in September 2011.
She says Standard Bank Group is adjusting its credit requirements to make it easier for its customers in South Africa to access credit, but she stresses that the bank will ensure that provision of such credit will be done in a responsible way.
"An improvement in the credit profile of our clients has allowed Standard Bank to make a number of changes to its risk appetite, increasing the availability of credit to credit card holders and stimulating consumer demand.
"We are doing our best to make sure that credit is available to those who need it because we believe that this will play a part in encouraging economic growth. However, we are doing this in a responsible way, based on affordability and credit granting criteria.
"We have seen an improvement in the levels of bad debts and the number of customers falling into arrears has reduced. Many of our customers are revolving less and paying down their balances to reduce their debt. Customers are using their credit cards more responsibly," says Ms Fourie.
Standard Bank Group in South Africa has adjusted its credit models to make it easier for customers to access credit cards while at the same time reducing the levels of distress among consumers.
The rules enabling customers to qualify for higher limits on their credit cards have been adjusted, but will be based on the each customer's affordability. The minimum monthly income required to qualify for a Standard Bank Gold credit card has also been reduced from R10 000 to R8 000 per month, while the minimum annual income required to qualify for a Diners Club charge card has been reduced from R500 000 to R300 000 a year for existing Standard Bank Prestige Banking customers.
Ms Fourie says the refined credit models will increase Standard Bank Group's acceptance rate by more than 15%. She says many South Africans are using the opportunity created by lower interest rates to reduce their outstanding balances on their credit cards.
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