SA’s jittery lenders

CREDIT INDUSTRY: IMPACT OF COVID HAS CHANGED LANDSCAPE

National Credit Regulator receives many consumer requests for help with debt.

The credit industry is another part of the economy that was severely impacted by the pandemic, leading to changes that will probably be permanent in the credit market.

Uncertainty about when the economy can operate fully again is also making lenders jittery, with supply from credit providers decreasing by 30 to 40%.

“People are in a difficult position due Covid-19. Job losses and salary cuts are becoming commonplace, while unemployment is expected to rise.

“These are bound to lead to increasing consumer overindebtedness,” says Lebogang Selibi, supervisor for education and communication at the National Credit Regulator (NCR).

He says the NCR receives many consumer requests for help and directs them to credit providers and debt counsellors for assistance.

The total value of new credit extended to SA consumers as at the end of September 2020 was R129.45 billion.

This represents an increase of R74.76 billion (136.72%) quarter on quarter and a decrease of R13.56 billion (9.48%) year on year.

There is still consumer demand for credit and it remains relatively constant, but credit supply has been muted due to the negative impact the Covid-19 pandemic on businesses, says Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa.

“While demand is very similar to pre-Covid-19 levels across most industries, supply from credit providers is lower due to the unknown longer-term impact on debtors’ performance.”

Experian’s latest consumer default index for the third quarter showed significant improvement from the previous quarter, down from 5.86% in June 2020 to 4.68% in September 2020 due to the gradual reopening of the economy. In September 2019, the index reached 3.90%.

Nonpayment of home loans showed a relative deterioration of 31%, vehicle loans by 32%, personal loans by 14% and retail loans 55%.

Credit cards were the only exception, showing an improvement from 6.63% in September 2019 to 5.29% in September 2020.

“The credit market will remain under pressure as the medium to longer term impact of the pandemic is unknown and requires a more conservative approach to

30-40% is the decrease in supply from credit providers.

granting credit,” Van Jaarsveldt said.

Carmen Williams, research and consulting director at TransUnion South Africa, agrees there is still consumer demand for credit but expects less new credit granting than last year.

“There is a lot of uncertainty and the changes will continue.”

According to the NCR, consumers have the following options if they are unable to pay their debts:

► Credit life insurance that consumers buy when they apply for credit or loan covers the outstanding debt in the event of unforeseen circumstances, such as death, retrenchment, unemployment, inability to earn an income and disability.

► Debt counselling or review is a debt relief measure to assist overindebted consumers struggling with debt through budget advice, negotiation with credit providers for reduced payments, extension of repayment term and restructuring of debt. Debt counselling also offers consumers protection against repossession or legal action by credit providers.

► Surrender of goods. The National Credit Act allows consumers to voluntarily surrender or return goods to credit providers when they can no longer afford repayments or foresee that they will not be able to maintain future payments. –