THE lowest interest rates in 23 years and benign inflation have led to a spending spree, with retailers and banks benefiting from the confidence consumers have in the South African economy.

Financial results from retailers and banks over the past few months show South Africans are spending and borrowing more money as they participate in the upswing in the economy.

The largest listed retailers Edcon, Truworths, Massmart and Woolworths have all shown a strong rise in sales and profit over the past year.

New car sales figures released this week show that the motor industry is also benefiting, with sales of new vehicles in September 22,7% higher than a year ago.

Although there has been growth in the real disposable income of local households, much of the current spending has been on borrowed money.

According to the Reserve Bank's latest quarterly bulletin, banks have been growing the amount of money lent to the private sector an average 10% a year over the past four years.

It says the drop in interest rates over the past year has contributed to easier lending conditions and growing demand for credit. This is particularly the case for asset-backed credit such as vehicle finance.

Customers have also been more reliable with loan repayments. Nonperforming loans at the banks are on the decline. A loan is considered nonperforming when repayments are missed for three months or more.

Despite growth in borrowing, Absa economist John Loos says the fall in interest rates over the past year has made repayment of the household debt burden the most affordable it has been in about 16 years.

"Low interest rates are obviously the main driver, but it is also the fact that households have less debt as a percentage of household income than they did in 1998," Loos says.

He says economic growth of more than 3% a year on average since 2000, as well as disposable income growth of more than 3% a year over the same period, has meant that the household debt as a percentage of income has been contained.

"I think what we are still seeing is the aftermath of the 1998 shock (when the prime interest rate rose to 25,5%)," says Loos. "Lots of households became a lot more cautious and lowered their debt ratios."

Mike Olsen, director at Standard Bank's card division, says while the current low interest rate environment is good for consumers, they are not necessarily borrowing more money. He says many are also taking the opportunity to pay off their credit cards.

Despite the perception that banks are making credit more available, Olsen says his bank's risk profile remains good, with loss rates well below international standards.

"There is a fine line between being too conservative and less than responsible when lending money to customers ," Olsen says. "We try to find the balance."

He says the low interest rate environment also allows banks more flexibility in helping customers who have trouble repaying their debt. Olsen says some of the current spending is being directed to more expensive items, with customers buying more large goods on their budget facilities than they would when interest rates were high.

They may also be buying those goods sooner than they would have previously.

"I can't say there is overall change in the shape of spending patterns though," Olsen says.

He says his division's lending growth has been good. "When the economy is doing as well as it is and interest rates are low, you invariably are going to see growth."

Loos says while the current rate of growth in retail sales is probably not sustainable, it should continue at a slower pace.

"There has been a structural change in the inflation environment that has led to a change over the long term in lower interest rates and a more stable interest rate environment," Loos says.

"I think banks can be a bit more relaxed in their lending in the short term. But nevertheless, one would expect towards 2006 some sort of mild deterioration in the bad debt situation."

Even when interest rates do rise again, Olsen is comfortable that there will not be an increase in nonperforming loans .