Consumer Credit Crisis Continues

DebtBusters' CEO describes the latest data released by the NCR as “deeply troubling for the South African consumer, and economy in general. There seems to be no sign of a reversal of the average consumer’s finances, with more and more South Africans falling into arrears on their accounts”.

Key facts:

The bad news:

• 20.21 million credit active consumers, of which 9.69 million have impaired credit records
• The growth of unsecured credit slowed by 2.34% quarter-on-quarter but is the industry still granted R22bn in the quarter, accounting for 20.13% of the total credit granted
• 124.77% year-on-year increase on the amount of unsecured credit granted for less than or equal to 6 months
• 37.59% of unsecured credit accounts are out of date and in arrears
• Debt owed to ‘Other Credit Providers’ (non-bank) has increased by 70% year-on-year.

The good news:

The value of mortgages granted increased by 20.21% quarter-on-quarter from R25.04 billion to R30.10 billion, with the majority of mortgage agreements granted for larger amounts, specifically greater than or equal to R700k

The detail:

1. Nearly half of all credit active consumers have impaired credit records:

Decreasing numbers of South African consumers classified in “good standing”, whereby they are up to date with their debt repayments, portrays that more and more consumers are struggling to meet their debt obligations. Numbers decreased by 31,000, from 10.55 million to 10.52 million.

Consumer credit health continues to be a prominent issue in South Africa and it is evident that consumers are still under financial pressure, as the number of credit-active consumers with impaired credit records, meaning they are three months or more in arrears, continues to rise. The CBM reveals a drastic quarter-on-quarter jump from 9.53 million to 9.69 million.

Signs of financial recovery are nowhere to be seen, as performance of consumer accounts drastically deteriorated as the number of impaired consumer accounts increased from 18.31 million to 18.87 million in comparison to the previous quarter.

The report also shows that the number of applications received by credit providers for credit, increased by 232,000 from 10.12 million to 10.35 million, indicating a 2.30% quarter-on-quarter increase.

With the worsening financial turmoil consumers are faced with, it is evident that credit providers have continued to tighten their lending policies, due to the high 56.14% rejection rate for credit applications.

2. Consumers are continuously turning to unsecured credit to meet their needs:

Unsecured credit transactions include all credit agreements or transactions, whereby the lender does not have any security or assets, other than credit facilities or short-term credit (typically personal loans). Unsecured credit granted increased by R22.06 billion in the quarter ended in June 2013.

Although the rate of growth has slowed by 2.34%, the amount of unsecured credit granted to South African consumers still makes up 20.13% of the total credit granted. Pay day loans, also known as a ‘pay check advance’, are characterised as small, unsecured short-term loans, with high interest rates attached. The repayment terms are generally less than six months and typically for one month. It is intended to cover a consumer’s expenses until they receive their monthly salary.

A significant trend shown in the CCMR is that there has been a drastic year-on-year increase of 124.77% in the amount of loans that have been taken out for less than or equal to 6 months. South African’s are increasingly taking out pay day loans to service their debt and current expenses. In the second quarter ended in June 2013, 78% of the total unsecured credit granted (R17.3 billion) was for personal loans larger than R15,000.

This clearly shows the trend toward consumers taking out larger personal loans. The report also depicts that the percentage of unsecured credit agreements lent to lower income earners, with a gross monthly income of less than or equal to R10k, is decreasing due to a year-on-year decrease of 25%.

Adversely, the percentage of unsecured credit agreements leant to individuals with a gross monthly income greater than R15k, increased by 38% year-on-year. A worrying trend, as it appears that the middle and upper LSMs are taking out increased the bulk of these larger loans.

The CCMR further indicates that the total outstanding gross debtor’s book of consumer credit, referring to the total amount of money owed by creditors to all South African credit providers, was R1.47 trillion, representing a 1.07% quarter-on-quarter increase. For the same period, the number of accounts increased by 0.01%, indicating that the same South African consumers are taking out more debt.

3. South African consumers remain under financial strain:

The unsecured credit gross debtors book increased by R3.46 billion, a quarter-on-quarter increase of 2.10% and by R36.75 billion, a year-on-year increase of 27.99%, amounting to a total of R168 billion. An additional concern for credit providers arises as only 62.41% of unsecured credit accounts are up to date, resulting in a drastic amount of 37.59% of unsecured credit accounts are in arrears and not up to date with payment.

4. ‘Other credit provider’s’ gross debtors book is drastically expanding:

Interestingly, the amount of debt owed by retailers is decreasing, as there has been a 15.97% decrease year-on-year, but the amount of debt owed by ‘other credit providers’ is growing at an incredibly fast rate of 70% year-on-year. This is reflecting a far more cautious approach from retailers, which could affect their retail sales in the coming month.

5. Credit lenders are more likely to grant larger mortgage loans:

However, on the brighter side, the value of new mortgages granted increased by 20.21% quarter-on-quarter from R25.04 billion to R30.10 billion. Similarly, year-on-year the amount of mortgage agreements granted increased by 0.06%.

The data also shows that the majority of mortgage agreements were granted for larger amounts of money, particularly greater than or equal to R700k. This could be the first green shoots of recovery in the middle and upper end of the property market, which has been in the doldrums since 2008.