PERCEPTIONS that customers are facing a credit crunch were reinforced yesterday when Absa became the second big bank to release first-half results that revealed a decline in loans and advances.

Absa said its advances and loans dropped 1% to R495bn at the end of June, almost the same margin decline that Nedbank reported on Monday. Nedbank’s gross loans and advances fell 1,4% to R472bn at the end of June from R475bn at the end of December.

Overall, Absa’s gross loans and advances fell 1% from June last year and 2% from the end of December, group CEO Maria Ramos said yesterday.

The decline in lending reinforces muted credit demand due to high household debts, and the effect of tighter lending criteria that banks have imposed to contain runaway bad debts.

Ms Ramos, who yesterday reported a 19% increase in Absa’s headline earnings to R4,6bn, said the tepid credit demand was not surprising given the economic environment. She said sustainable growth would help create jobs and demand in the economy.

"I think that the challenge for us is to create jobs with the growth," she said. Ms Ramos said Absa had performed well enough to reward shareholders with a 30% increase in its interim dividend to 292c per share.

Group finance director David Hodnett said this showed that Absa was still comfortable returning money to shareholders despite the bank’s decision to continue holding a high capital buffer ahead of the finalisation of Basel 3 capital requirements. "We need more sustainable investment in infrastructure both in the public and private sector and this in turn will create jobs," Ms Ramos said.

Nesbert Ruwo, a senior analyst at research firm Intellidex, said the decline in advances showed that consumers were not yet borrowing.

It also revealed a more conservative approach towards lending by the banks, he said.

"While deposits from (Absa) customers increased, lending declined, pushing (the) loans-to-deposits ratio downward to 90,6% from 95,5%," Mr Ruwo said.

Absa deputy CEO Louis von Zeuner also spoke of the decline in advances, particularly in the retail and business banking units.

Mr von Zeuner said the retail unit had lost market share in home loans not for lack of appetite for business, but because Absa was being cautious about lending as consumers were still heavily indebted. Household debts in SA are still at a record high with the ratio of household debt to disposable income at more than 78%.

Absa, however, sees growth in unsecured lending, according to the CEO of Absa Retail Gavin Opperman, who yesterday said he would be pursuing "controlled growth" during the last half of the group’s financial year.