The Easter holidays are a time to be with family. During April, retail sales volumes increase dramatically as more and more consumers are in the shops to purchase items for Easter. It is a time when consumers usually overspend and overindulge using credit, which can lead to high levels of post-Easter debt.
28 November 2012
by Maya Fisher-French
Mail & Guardian
Consumers and small businesses are starting to collapse under a combination of higher interest rates, higher petrol prices and higher food prices.
According to latest figures from Statistics SA, personal insolvencies increased by 58% last month compared with a year ago and civil debt judgements against companies jumped 41,2%. Liquidations for the first two months of the year increased by 6%.
This is the first time since February 2002 that liquidations have increased in the first two months of the year. These figures do not come as a surprise considering the current levels of household debt. The ratio of household debt to disposable income rose to 77,6% at the end of last year compared to 72,8% at the end of 2006.
This is the highest level of household debt ever recorded in South Africa. Not only has debt increased, but higher interest rates have meant that the cost of servicing this debt has also risen. At the beginning of 2006, the cost of servicing debt was around 7,2% of disposable income — this has risen to 11,5%. Combine this with petrol price hikes of 20% since the beginning of the year and food inflation and it is not surprising the chickens have come home to roost.
Ross Linstrom, spokesperson at Standard Bank, says the deteriorating economic environment in South Africa has taken its toll on customers. Standard Bank’s credit card division has experienced an increase in the number of non-performing loans.
With regard to mortgages, Standard Bank said that on average it repossessed two houses per month during 2007. However it has seen an increase in repossessions over the past five months.
Forty percent of the repurchases for last year occurred in the last quarter. This trend has been maintained in the first two months of 2008. Marcel de Klerk, of Absa’s vehicle and asset finance division, says it has seen an increase in repossessions in the first three months of this year. Last year it repossessed 100 vehicles a month compared to an average of 1 300 vehicles a month for this year so far.
It is expecting a 15% increase in car repossessions for 2008.
Data provided by the Reserve Bank shows banks have made bad debt provisions of R10-billion or 0,57% of total their total assets. These are loans that have defaulted and the collateral — for example a house or car — is going to auction.
A year ago, this figure was R7,8-billion or 0,51% of total assets. Bad debt provision for mortgages has increased to R3,54-billion in December 2007 compared to R2,5-billion the previous year. As a percentage of assets this represents a 10% increase in bad debts.
It is credit cards, however, that show the biggest potential for default. Although actual bad debts have only ticked up slightly over the past year, the number of repayments that have fallen in arrears — of three months or more — has increased by 54% compared to a year ago.
Companies have experienced a sharp increase in insolvencies. According to Jo Schwenke of Business Partners, which supports and finances small business development in South Africa, the restaurant business has been the worst hit.
Generally, Schwenke says any business geared to consumer-discretionary spending has seen a fall in turnover. This includes food- store franchises including Spar and Family Pick n Pay stores.
Schwenke says given the rapid increase in food inflation, these stores should have experienced an increase in turnover, but there is a clear indication that consumers are spending less. He says those businesses that Business Partners finances are suffering as a result of macroeconomic conditions and could receive assistance.
“We are checking whether the business is sound and that the lower turnover is owing to broad economic slowdown — then we will restructure a deal to assist them. This is a priority for us right now,” says Schwenke who adds that Business Partners has seen a slight upturn in arrears. He says arrears have increased by around one-third, although on small percentages.
It is not all bad news. He says businesses geared to the infrastructure boom that are sub-contracting to larger construction firms are still thriving. Businesses geared to the export market are starting to benefit from the weaker rand. The tourism industry is seeing a fall in domestic tourism, but there are more foreign travellers as South Africa becomes an increasingly cheaper holiday destination, with the rand at R12 to the Euro.
Private sector credit growth in February slowed faster than expected, to 20,8% — down from 23,1% in January. Markets were anticipating a modest slowdown of 21,9% year-on-year.
Economist Kevin Lings says that while there has been a number of technical adjustments to the measurement of credit, there is evidence of a slowdown in credit growth. “Although the slowdown is still relatively modest, it is expected to become more apparent during 2008.”
Lings says once these numbers are adjusted for inflation, real credit is only growing at 10,9% compared to its peak in February 2007 of 20,8%.
Mortgage lending grew by 0,8%month-on-month in February and by 23,1% over the past year.
Although high, Lings says this is the lowest monthly growth in mortgage credit since December 2002. In value terms mortgage advances increased by R7-billion in February, compared with a 2007 monthly average of R14,1-billion.
Standard Bank’s property gauge showed that property prices fell for the first time by 5%, with the average-priced house dropping from R580 000 to R550 000.
Credit card growth also slowed from a high of 44,1% in July last year to 21,6%. Lings says there is evidence that interest rates as well as the introduction of the National Credit Act have helped to slow the demand for credit, as well as consumer and housing activity.
“Hopefully, the Reserve Bank will be willing to continue to leave interest rates unchanged, while they assess the impact of the recent rate hikes,” says Ling.