SA remains credit-stressed

WITH CONSUMER CONFIDENCE DIPPING, CAUTIOUS OPTIMISM WILL BE APPLIED ‘Unsecured loans are growing, while larger, secure loans are not.’

South African consumers are still credit-stressed, although there has been significant improvement in the credit sector, giving rise to cautious optimism for the first time in years. However, the credit market remains constrained, while unsecured loans are growing and vehicle financing and home loans are under pressure.

According to the Eighty20 2023 Q4 Credit Stress Report conducted in collaboration with Xpert Decision Systems (XDS), that outlines developments in the credit sector as well as its impact on the economic landscape, there were positive as well as negative indicators affecting credit.

Although the third-quarter analysis brought a glimmer of hope to South Africa’s credit sector, this optimism was short-lived as the fourth quarter highlighted a blend of positive and negative indicators, with the unemployment rate increasing slightly, inflation creeping up and consumer confidence dipping down again, says Andrew Fulton, director at Eighty20.

Despite this, there was a significant improvement in the credit sector as the percentage of loans in arrears decreased by a full percentage point. “Although our economy bounced back to its pre-Covid level in mid-2023, there was a 0.3% decline in gross domestic product during the third quarter, raising concerns that the country is at risk of a recession when the GDP figures were released on 5 March.

“The UK has already slipped into a technical recession and, globally, the outlook remains bleak,” Fulton says.

The analysis showed that the average ratio of monthly instalments to net income for all South Africans is at 47%, indicating that nearly half of the income of the average credit-active individual is allocated to debt servicing.

Among the middle class, this ratio is nearing 80%, marking a 14.5% increase over the year.

Other Q4 developments include:

This was the first quarter since the first quarter of 2020 where the average outstanding balances declined [by 0.7%] compared to the previous quarter;

Over the past two years, total loan balances for vehicle asset finance were declining among the middle class, resulting in 100 000 fewer middle-class individuals having vehicle financing loans during that time frame;

The total value of home loan balances experienced its first decrease since the Covid lockdown started; and

In December, retail sales delivered a surprise by increasing 2.7% year-onyear before inflation. However, overall, 2023 saw a 1% decline compared to 2022 in real terms. There were 1.25 million new retail loans in the fourth quarter.

All major listed banks acknowledged the impact of credit impairments on their 2023 financial results, Fulton points out.

“African Bank revealed it had to double its provisions to account for bad debt, while Standard Bank noted that while its credit impairment charges had decelerated, they remained at elevated levels.”

Consequently, banks and retailers are adopting stricter measures in extending credit to new customers, alongside writing off overdue debts. Interestingly, Fulton says, this trend could account for the second consecutive quarter-on-quarter decline in the proportion of loans in arrears, currently standing at 36.4%, as banks eliminate bad debts from their records.

“These observations mirror trends evident in the credit data. It is the first quarter-on-quarter decrease in average outstanding balances since the first quarter of 2020.

Moreover, both the total open loans and the count of credit-active individuals experienced a marginal 1% increase. Concurrently, overdue balances exhibited a reduction of 0.5%, amounting to R188.6 billion.

The data also shows that unsecured loans are growing, while larger secured loans are not, he says. “There were more than 600 000 net new loans in the fourth quarter, which reflected the trend of large loan products (home and car loan) typically reserved for the middle class, heavy hitters and comfortable retirees shrinking significantly. Conversely, there was also robust growth across the retail and unsecured loan sectors.”

Fulton also points out that vehicle finance is under pressure, with a noticeable decline in the number of people opting for vehicle and asset finance compared to 2019.

Year-on-year, these loan numbers have dipped by almost 1%, while total loan balances have seen less than 1% growth each quarter over the last three quarters, culminating in a year-on-year growth rate of 3.8%. –