Banks accused of stifling economy

South African banks’ strict lending policies could drive the country into a full-blown recession, warned Econometrix chief economist Dr Azar Jammine.
 “Although our banks are healthier than the rest of the world’s, their tightening on lending could feed on itself and develop into a full-blown recession in due course,” he said, using sales of heavy commercial vehicles to make his point.
“Heavy commercial vehicles sales kept increasing until September 2007, long after car sales started falling, and then suddenly fell dramatically. It’s not that businesses don’t want to buy trucks any more, it’s just that they’ve been unable to borrow money to purchase them.”
Dr Jammine said the lack of growth in private sector credit was evidence that even fairly sound potential debtors and businesses were finding it difficult to borrow money, as banks tighten up on credit lending. Figures as at February 2009 show total private sector credit extension growth came down to about 11% from a peak of around 26%.
“Even more dramatic is the fall-off in private sector credit extension to households,” said Dr Jammine. “Growth in mortgage advances has fallen from about 30,5% to about 12%, hire purchase credit has fallen from 27% to 10,4%, leasing finance growth has declined from 22% to -20%. Borrowing by business fell from 38% at its peak to about 11%.”
Dr Jammine said other loans and advances accounted for 33% of all credit, mortgage advances 48,7%, hire purchase accounted for about 12% of all credit and leasing finance about 6%.
He noted that tractor sales, which had been holding up reasonably well, had experienced a noticeable fall-off in sales. “The increase in sales last year might have been attributable to preemptive buying due to price increases, but one suspects the mood of global depression has filtered through and reduced sales.”
But Ernst Janovsky, Absa’s agribusiness head, said banks’ tighter lending criteria would not kill the economy. “Times will be tighter and the cost of money is a little higher, but this is purely because there isn’t so much money available from the institutional side,” he said. “This is because government is taking up much of the money and it’s being used for capital spending projects such as Eskom and roads.”
Janovsky said while it was true the taps on the flow of money were being tightened and this would influence two or three sectors like manufacturing, housing and cars, it was not so for agriculture. “In agriculture, we’re actually opening the taps. We’re not asking for deposits because the risk in agriculture is currently low.” – Robyn Joubert