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28 November 2012
From Business Day
by Michael Bleby
NATIONAL Credit Regulator Gabriel Davel warned yesterday that SA’s highest earners would be harder hit than middle- income earners as interest rate rises squeezed their ability to pay.
Releasing lending data from credit bureaus for the first time, Davel said that while the middle-income market (people earning between R3500 and R7500 a month) were the biggest debt bearers between the second and third quarters of last year, those earning more than R7500 would start feeling the pinch soon.
The proportion of “good standing” debtors among the middle-income group slid from 61% to 56,9% between June and September . Consumers with an “impaired record” rose from 39% to 43,1% in the same period. The middle-income band is the largest group of borrowers in SA’s total credit market of 16,9- million people.
Over the same period, the proportion of individuals in good standing among those earning more than R7500 a month slipped from 77,9% to 75,9%.
Those with an impaired record in the higher-income bracket rose from 22,1% to 24,1% , said the regulator.
The tide would start turning in the coming months, and the rich who had splurged on big-ticket items would be reeling.
“When the interest rates work through the system, it’s going to hit the highest-income group the most,” said Davel. This group would have huge car and housing debt.
Total consumer debt in SA stood at about R1,1-trillion at the end of September, Davel said.
About 80% of this was mortgage credit, with a further 14% being vehicle finance — categories that generally only higher-earners qualify for. The prime lending rate has risen four percentage points since June 2006 to 14,5% and this would increasingly hamper people’s ability to repay their debt , said Davel.
Non-bank debt such as retail store cards accounts for less than 15% of the total figure.
Middle-income earners took on large debt before the National Credit Act set in on June 1 . That over-extension, coupled with rising fuel and food costs, was proving more problematic for this group than increased interest rates, said Davel.
“Traditionally, people would have rolled over the pain by getting a new credit card. Now that’s a lot more difficult,” he said.
Those earning less than R3500 had the worst credit record. The proportion in good standing slipped from 46,4% to 48,1% and the number with an impaired record rose from 53,6% to 51,9%. But the overall borrowings of these groups is small compared with the other two and is unlikely to change much.
Davel said consumers came into the sights of credit providers and insurers only once they started earning R3500 a month.