TOTAL liquidations of companies and close corporations fell to 3510 last year the lowest level in at least six years after economic growth surged and interest rates were cut to a 24-year low.

Liquidations were down 14% compared with 2003, according to figures released yesterday by Statistics SA. The number of people declared insolvent also dropped dramatically last year, plunging 34,1% to 1573 in the first 11 months compared to the same period in 2003.

Low interest rates and faster economic growth have improved the financial position of companies and people, reversing the trend in 2003 when bankruptcies soared in response to the Reserve Bank's interest rates hikes the year before.

The Bank's key repo rate was hiked four percentage points to 13,5% in 2002 to curb inflation fuelled by the rand's collapse in 2001.

However, the rand's subsequent recovery and a drop in inflation prompted the Bank to cut interest rates from the middle of 2003. To date the central bank has slashed its repo rate by a cumulative six percentage points to 7,5%.

Low interest rates helped boost economic growth last year, with gross domestic product accelerating to an annualised rate of 5,6% in the third quarter the strongest growth in more than eight years.

Absa economist Karen Ford said yesterday that the drop in insolvencies indicated that the financial position of most households was "quite healthy", with disposable income rising because of low inflation, strong economic growth and a stable currency. She forecast that insolvencies would drop 39,5% this year, and pick up only next year.

"Although household debt to disposable income has risen gradually since the beginning of 2004, it is still much lower than the critical levels experienced in 1998," she said.

"The credit quality of households has also improved since then, with growth in credit extension expected to remain relatively strong throughout 2005."

Consumer debt levels steadily increased last year as people took on more debt to finance spending on houses, cars and durable goods. The ratio of household debt to disposable income increased to 55,4% in the third quarter, up from a low of 49,2% in the fourth quarter of 2002.

Worsening debt levels, with soaring credit demand, have raised concerns about the affordability of consumer debt. Some economists have suggested the Bank's monetary policy committee may hold rates steady next week, to prevent overstimulating consumer demand.

However, Standard Bank economist Elna Moolman said in a research report yesterday that consumer debt remained affordable. Bad debts recorded by retail banks fell last year, and were expected to drop again this quarter, she said.

"Debt affordability, as measured by the proportion of income spent on debt repayments, is an early warning sign of private sector debt default," she said.

"Household debt should remain quite affordable, not only at present levels but even if the ratio of household debt to income rises to its historical maximum and interest rates increase by two percentage points."

Absa forecast that the rate of company liquidations would be fairly steady this year. "With another year of solid economic performance, strong growth, low interest and inflation rates, and an anticipated improvement in credit quality for businesses, it is likely that the number of total liquidations will move sideways this year," said Ford.