Credit Growth Signals Demand, But Risks Rise

The latest reading points to E23.9 billion in private sector credit, driven by stronger borrowing from both companies and households. On the surface, that supports the view that economic activity has not stalled. Businesses are still drawing on credit to fund operations and households continue to borrow, which helps cushion growth even in a high-rate environment.

But the quality of that expansion matters as much as the size. The report also points to significant undisbursed approved loans, suggesting that credit supply may be widening on paper faster than money is actually reaching borrowers. That gap is consistent with tighter lending conditions, slower approval-to-disbursement flows and a banking system becoming more selective about risk.

For investors, the mix is two-sided. Lenders with pricing power can benefit from a larger loan book, but rising credit balances in a tougher macro setting can foreshadow weaker asset quality later on. The mention of increasing bankruptcies and concerns over debt sustainability raises the chance that delinquencies and write-offs climb if growth slows further or borrowing costs stay elevated.

The backdrop is also important for interest-rate-sensitive sectors. Property lenders and consumer finance companies tend to feel the lagged effects first when refinancing demand weakens, loan demand becomes more rate-sensitive and borrowers become more stretched. That helps explain why credit growth can remain positive while margins, origination quality and collections get more difficult to manage.

The broader message is that the economy is not short of credit, but it may be entering a phase where credit is more expensive, less evenly distributed and more closely watched by lenders. If tightening standards continue, the pace of private sector borrowing should moderate, even if nominal balances keep rising for a while longer.

The key question for the next few months is whether the increase in non-governmental credit reflects durable private-sector confidence or simply a late-cycle stretch for funding. For markets, that distinction will determine whether credit growth is a support for activity or an early warning sign for financial stress.