Corporate credit demand rises amid improving business conditions, reports Nedbank

Johannesburg - There are signs of a cautious uptick in credit demand by mid-cap companies on the back of improving business conditions, uninterrupted power supply and expectations of a continuation of business-friendly policies under the GNU, says Herman de Kock, Executive: Mid-Corporate Coverage at Nedbank Commercial Banking (NCB).

‘So far this year, we have seen an acceleration of borrowing requests to fund renewable energy. In the context of environmental, social and governance (ESG) imperatives and the anticipated continuous evolution of regulatory pressures, we expect the demand for renewable energy investment to continue with investment in alternative energy being driven by energy efficiency,’ he says.

Latest figures released by the South African Reserve Bank (SARB) show that private sector credit extension (PSCE) grew by 4.9% y-o-y in August, up from 3.5% in July. The improvement was almost across all the subcategories. However, the most significant boost came from the ‘investment and bills’ and ‘other loans and advances’ categories. Investment and bills rose by 4.7% mom, pushing the annual growth rate to 7.2% from 0.4%.

De Kock says credit demand was muted throughout most of 2023 due to macroeconomic constraints, including persistent load-shedding. However, there are signs of rising business credit appetite as economic conditions are beginning to stabilise, while Eskom has suspended load-shedding owing to improving generation capacity. 

‘Despite the uninterrupted power supply, borrowing requests to fund renewable energy have accelerated. Furthermore, it is also encouraging that businesses are beginning to plan for long-term capital expenditure projects, reflecting their cautious optimism about the future.’

‘The more economically friendly election outcome in the form of the GNU is injecting some positivity into business confidence, which will hopefully bring lending to finance infrastructure and other fixed-investment growth in line with the shorter-term working capital lending that dominated lending demand to date. Nedbank is prepared to support this resurgence in demand with tailored financial solutions and advisory that caters to the needs of mid-cap companies, helping them navigate and thrive in the evolving economic landscape,’ De Kock says.

He believes the pause in the interest rate hiking cycle, with the repo rate cut experienced in September and another rate cut expected in November this year, will be positive news for many businesses. While reducing the repo rate boosts growth, De Kock stresses the need for more reforms to sustain business confidence.

‘The overall positive sentiment that we currently notice, just by reflecting on the record highs reached on the JSE in the wake of an investor-friendly election outcome should, however, not cloud the structural challenges our economy faces. While we have seen record consecutive load-shedding-free days compared to the last few years, the question remains of whether this can be sustained to provide consistent energy at the required demand levels for economic growth. In this context, the need for more reforms to sustain business confidence cannot be over-emphasised,’ he says.

He concludes by saying NCB is taking a holistic approach to a business’s investment in a more carbon-neutral operation. ‘We have innovative lending solutions, particularly in regard to renewable energy (SDG 7), clean water and sanitation (SDG 6), and waste management and recycling, which are linked to sustainability and development finance (SDG 12).’