Bank warns on household debt
21 October 2004
Low interest rates and a strong rand have spurred on the economy and boosted business confidence. But there's a downside to the wave of financial feel-good many are experiencing in the country at the moment.
Reserve Bank Governor Tito Mboweni has warned Parliament that "society ... is getting deeper and deeper into debt, and at some point this has to stop".
Addressing Parliament's finance committee earlier this month, Mboweni said that South Africa's household debt had risen to 55% of household disposable income in the second quarter of 2004, up from 51% in 2002.
Mboweni's reservations are a shift from earlier in 2004, when the Reserve Bank noted that despite increased consumer spending, South Africans were managing to keep debt under control.
Low interest rates boosted consumer spending by 4% in the last quarter of 2003, but reduced debt at the same time. The ratio of household debt to disposable income fell to 52.5% in the
period, from 53.5% in the third quarter of 2003.
Mboweni has repeatedly advised consumers to take advantage of interest rate cuts to reduce, rather than increase, debt. The Bank has also warned of the potential inflationary effect of accelerated bank credit to fund consumption purchases, Business Day reports.
Debt good for sellers and lenders
According to the paper, confidence in South Africa's banking sector is soaring, boosted by increased demand for mortgage and other consumer-related debt.
At the same time, low inflation and interest rates have buoyed the country's retail sector with strong consumer spending.
The 10th quarterly survey of the banking sector by Ernst & Young - which includes all division heads at SA's major retail, merchant and investment banks - shows all banks rating business conditions as "satisfactory".
The survey said that although lower interest rates cut profits for banks, the decline came
off a high base, which meant that banks still operated comfortably in a zone of profitability.
South African banking confidence is expected to run high until at least the end of 2004.
SouthAfrica.info reporter
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