Household sector debt continues to improve

FIRST National Bank’s (FNB) household sector debt-service risk index declined further in the third quarter of 2014, the bank said yesterday.

“While its debt and savings situation still leaves much to be desired, through 2014 South Africa’s household sector continued to gradually lower its vulnerability to any unwanted interest rate hiking surprises by further lowering its debt-todisposable income ratio,” FNB household and property sector strategist John Loos said.

“There is, however, much work to be done.”

The index indicates people’s vulnerability to interest rate hikes, which affects their ability to repay debt. A declining index indicates people are less vulnerable.

In the second quarter of 2014, the index level was 5.82 (on a scale of one to 10), and in the third quarter the level was 5.72.

Declining trend

still “This continued a declining trend since the 6.63 revised high recorded in the third quarter of 2012.

“The level of the household sector debt-service risk index still remains above the longterm (34 year) average level of 5.07,” he said.

Recent upward revisions in household indebtedness figures by the SA Reserve Bank kept the index in the “high risk” range, but it had been steadily moving down.

Loos said the household sector was “moderately better positioned” to weather an interest rate hiking “storm” compared to 2008/09.

This was due to its overall level of indebtedness being considerably lower compared to that period. The household sector’s vulnerability should still be seen as being on the high side, he said.

“Therefore, a positive nearterm inflation and interest rate environment should rather be seen as a window of opportunity in which to get the debt house in order, rather than a reason to ratchet up the level of household sector indebtedness or merely to keep it the same.”