CRISIS… WHAT CRISIS?
THERE ARE ESSENTIALLY two views of South African household debt: one positive and one negative. Addressing the negative view first, you could easily be led to believe that consumer debt is approaching crisis levels.
Consider year-on-year growth in nonperforming credit card debt, defined as debt payments that are in arrears for three months or more. Non-payment surged 71,5% in December 2006, thanks largely to the 2% rise in interest rates last year. Growth in non-performing mortgage debt also rose 18,5% year-on-year in December 2006. Focusing on the growth side of consumer debt certainly paints a grim picture of household finances.
However, there’s another way to look at all this. Non-performing credit card debt – where payments are in arrears for three months or more – currently stands at just 5% of all outstanding credit card debt in the economy. That’s still better than the 7,7% average for that variable since 2001. By the same token, non-performing mortgage debt accounts for just 1,9% of all outstanding mortgage debt – also better than the 4,1% average since 2001.
Viewed in that light, consumers are hardly facing the “mounting debt crisis” being trumpeted by much of the financial press.