Down debt’s slippery slope
DEFAULTERS BECOME PROGRESSIVELY LESS LIKELY TO PAY Deterioration is largely linked to the record-high 27.7% unemployment level, the rising cost of household essentials and high levels of household debt-to-disposable income.
Consumers who have already defaulted on payment obligations are likely to have a tougher time paying off their debt. Transaction Capital’s Consumer Credit Rehabilitation Index (CCRI) shows the rehabilitation prospects of consumers already in default positions fell 1.1% yearon-year in 2017’s second quarter.
The index is based on a random sample of more than five million consumers in credit default listed on Transaction Capital Risk Services’ (TCRS) internal database. TCRS collects on a host of non-performing loans valued at R29 billion for banks, credit retailers, specialist lenders and telecommunications companies, among others.
National Credit Regulator (NCR) data shows there are 24 million credit active consumers in SA, of whom 9.8 million are considered non-performing or in default. As such, TCRS’ sample is reflective of more than 50% of credit active consumers that are in arrears, said David Hurwitz, Transaction Capital CEO.
“Credit rehabilitation is often overlooked as a crucial element towards growing an inclusive economy as it allows consumers to fully re-enter the mainstream consumer market through access to conventional finance. Simultaneously, it allows lenders to maintain a cleaner balance sheet to continue extending credit at affordable costs.”
He added that a deterioration in the national index is largely linked to the record-high 27.7% unemployment level, the rising cost of household essentials and high levels of household debt-to-disposable income, all of which reduce money available to repay debt.
Regionally, the propensity of indebted consumers to repay debt decreased in eight provinces. The Western Cape was the only one to show an improvement, with a 4.8% annual increase. Down 16%, the Free State deteriorated the most, while Gauteng was flat at -0.2%. As the index is new, Transaction Capital doesn’t have an answer as to why the Western Cape bucked the trend. But it believes consumer credit rehabilitation prospects there are higher as it’s more urbanised and has a lower unemployment rate.
Although debt-to-disposable income levels improved to 73.2% from 86% three years ago, SA consumers still rank among the most highly leveraged in the world. Hurwitz said the improvement is largely due to a slowdown in the pace of debt growth versus an absolute decline in household debt. The Reserve Bank’s recent 25 basis point cut in interest rates may only contribute to a moderate improvement in households’ debt servicing burdens. “There are currently no longer-term signals that a meaningful correction is on the cards and we believe that a gradual deleveraging of the consumer will prevail.”