Twelve months after a SARB data adjustment regarding African Bank Household Credit data, that “structural break” in the data, which artificially lowered the Household Sector Credit year-on-year growth rate, has now worked its way out of the numbers.
This enables FNB to get a better view of where South Africa is in terms of overall Household Sector Credit growth, and in April 2017 this year-on-year growth rate was a lowly 2.9%.
This growth rate is reflective of a very low Non-Mortgage Credit component’s growth rate of 2.68%, while the Mortgage Credit component’s growth rate is slightly higher at 3.05%.
The Household Sector Mortgage Credit growth rate of 3.05% year-on-year is a marginal acceleration from a low point of 2.82% in February, and may reflect some very slight strengthening in the housing market late in the 1st quarter of 2017 as reported in our FNB Estate Agent Surveys.
But both Mortgage and Non-Mortgage Credit growth remain slow, and this should in all likelihood imply a continuation of that very healthy trend of decline in the Household Sector Debt-to-Disposable Income Ratio, which has been in place for most of the period from early-2008 where the ratio hit its painful all-time high of 87.8%. Since then, great progress has been made in reducing this ratio to a healthier level of 73.4% by the end of 2016, and the signs are encouraging for it to decline still further to below 70% in the near term, given that Nominal Disposable Income growth is likely to be nearer to 6% year-on-year, thus outpacing credit growth.
Should our FNB forecast for sideways movement in interest rates for 2017 hold true (with a rate cut being a “bonus”), it is likely that the declining Debt-to-Disposable Income Ratio will further lower the Debt-Service Ratio, i.e. the Interest Cost on Household Debt expressed as a percentage of Disposable Income. This percentage has already declined slightly from 9.7% in the 2nd quarter to 9.5% in the final quarter of 2016, and this ratio is arguably the best macro-predictor of the level of Household Sector Mortgage Arrears. So, the result in 2016 of the combination of the stalling of interest rate hiking after March 2016, along with declining levels of Household Sector Indebtedness, was a mild decline in the value of Household
Mortgage Arrears from 9.4% of total loan value in the 2nd quarter of 2016 (according to NCR data) to 8.8% by the final quarter of last year.
Should interest rates indeed not be lifted any further, the recent slow rate of Household Sector Credit growth bodes well for our expectation that the value of mortgage arrears relative to total value of mortgage loans could improve further (decline) through 2017.