Heavy vehicle replacement pushes up credit demand

Absa has seen a 40% increase in vehicle credit applications this year, according to the bank’s commercial asset finance head, Nelisiwe Baloyi. This was mostly in the medium and heavy-duty vehicles category – and while it was coming from a very low base, she said this was an extremely positive sign as operating margins remained under pressure. According to Baloyi, arrears in rand value were also some 40% better compared to the same time last year, while Absa’s credit approval rate was up by some 90%. “We started seeing an increase in orders from around the last quarter of 2010 throughout 2011 and have healthy order books for the next three to six months that will take us to the middle of 2012,” she said. But, said Marcelle de Klerk, Absa retail and business bank’s head of business markets, while the strong surge in credit applications was being welcomed the bank were still cautiously optimistic. “A lot of these new orders are because operators have no choice but to upgrade their vehicles now. Usually assets are replaced between 36 and 48 months, but during the global economic meltdown this did not happen and people were holding on to the vehicles for much longer. So a majority of the growth we are seeing is picking up on delayed replacements of vehicles.” This said, De Klerk pointed out that Absa was keen to lend more, saying the bank had experienced not only an increase in applications, but that the applications were also of a very high quality. “There is therefore not just a credit appetite but also a credit quality.” According to De Klerk, business in South Africa has moved from the stable, getting-their-house-in-order phase where they could ride out the economic storm to one of slow growth. According to Baloyi, increased employment levels in the transport sector as well as growth in export sales contributed positively, with domestic commercial vehicle sales showing good growth in excess of 15% year on year. This is, however, not expected to continue in 2012. While the Absa team was not willing to commit to a figure, they did say it was expected to be “south of 15% for the coming months”.