We are drowning in debt as bills pile up

28 September 2012 - 02:11 By TJ Strydom

South Africans are drowning in debt, with an increasing number falling behind on their loan repayments.

Almost half of those with access to credit now have impaired records, according to statistics released yesterday by the National Credit Regulator.

Although the interest rate is at a record low, another 170000 consumers fell behind on payments in the past three months. Bitten at the petrol pump, and with food and electricity prices rising, almost a fifth of them have fallen more than three months behind in servicing their debt.

But lending is still expanding at breakneck pace. In the past 15 months, the number of credit-active consumers has grown by one million.

The quarterly Credit Bureau Monitor shows that unsecured credit totals R133-billion and, although it accounts for only about one-tenth of total credit extended, it has mushroomed in the past year.

An unsecured loan does not require the debtor to buy an underlying asset such as a car or a house with the money. It also typically has a much higher interest rate.

National Treasury spokesman Jabulani Sikhakhane said yesterday that Finance Minister Pravin Gordhan's meeting with bank bosses last month was not specifically about unsecured lending, but had "covered a range of issues".

The Treasury did, however, say there "will be further engagement with financial and non-financial institutions on this issue so that South Africans are not over-indebted".

Significant trends in the credit monitor include:

  • The value of new mortgages granted increased by 9.69% quarter on quarter from R24.56-billion to R26.94-billion;
  • Secured credit, which is dominated by vehicle finance, showed an increase from R31.62-billion for March to R33.03-billion for June (a quarter-on-quarter increase of 4.49%);
  • Unsecured credit increased from R21.95-billion for March to R25.80-billion for June (a quarter-on-quarter increase of 17.55%); and
  • Credit facilities, which consist mainly of credit cards, store cards and bank overdrafts, increased by 12.95% quarter on quarter from R15.29-billion to R17.27-billion.

According to the report, the total outstanding gross debtors' book was R1.36-trillion, representing quarter-on-quarter growth of 3.22% and year-on-year growth of 11.14%.

Mortgages accounted for R814.65-billion (59.75%); secured credit was R263.11-billion (19.30%); credit facilities were R153.57-billion (11.26%); unsecured credit was R131.31-billion (9.63%); and short-term credit was R855.27-million (0.06%).

The banks' share of the total outstanding consumer credit as at June was R1.20-trillion (88.05%), with the retailers at R43.92-billion (3.22%).

Not only are South Africans finding it more difficult to keep up with payments, but for the first time since 2008 consumers' indebtedness has grown.

The Reserve Bank's September quarterly bulletin shows that the ratio of debt to disposable income has increased from 75.6% in March to 76.3% at the end of June.

While Nedbank economist Busisiwe Radebe was cautious about making a pronouncement from a single rise, she described consumers as "squeezed" and "very highly indebted".

"There is no scope for consumers to take on more debt at this stage," she said.

Even if the Reserve Bank cuts the interest rate further, Radebe thinks South Africans will rather use the extra cash in their pockets to pay off debts than to dive deeper into it.

Standard Bank's group of economists believe an interest rate cut is more likely.

"We believe that the probability of an interest rate cut [of 50 basis points] by January 2013 has tipped past the 50% mark," the research unit said.

The economists think the Reserve Bank's "rhetoric" suggests it might even have considered cutting interest rates last week based on "growth considerations".

Consumer spending has been the driving force behind economic growth in the past few years.

But consumers' wallets have been hit hard by price increases this year.

Reserve Bank data also point to an increase in the proportion of disposable income South Africans spend paying off their debt. It accounts for 6.9% of disposable income.

While it is not yet close to the 12.7% in the third quarter of 2008, it might creep that way if the interest rate is hiked or lending continues growing at the current pace.

According to the National Credit Regulator report, the "relative ease and speed at which the likes of unsecured personal loans can be obtained" has influenced the pace of handing them out.

Most of these personal loans are advanced to consumers who are vulnerable to changes in economic conditions.