Economic factors that steered the country towards a near downgrade by international credit rating agencies have not only played a role in the weakening of the Rand, job losses and hikes in fuel and food prices, but have furthermore contributed to testing times in the credit sphere. The latest statistics released by one of South Africa’s leading credit bureaus, Compuscan, reveal the extent to which South Africa’s struggling economy has impacted credit-active consumers and thus the industry as a whole.
The following table indicates the quarter-on-quarter percentage change of various account types that were listed as three plus months in arrears. Most notably, there was a 19% increase in Vehicle and Asset Finance (VAF) accounts that were three plus months in arrears.
Looking more closely at VAF accounts from quarter to quarter, the trends suggest that credit providers may have been reluctant to grant VAF loans of medium to high value. This was very likely due to concerns about consumers not being able to afford this debt. There was a remarkable 29% decrease in the number of VAF accounts between the value of R400, 001 and R999, 999 recorded on the bureau, compared to the previous quarter.
Similarly, there was a 20% decrease in the number of these loans to the value of R1 000 000 and more, and a 13% decrease in the number of VAF loans between the value of R250,001 and R400, 000. These changes likewise point to the fact that consumers, even those of higher income brackets, have been affected by increases in the cost of living.
Interestingly, despite the aforementioned patterns, there was a drastic 156% increase of VAF loans to the value of R50,000 or less. There was also a 16% increase of this loan type between the value of R51,000 to R100,000 and a 10% increase of those between R101,000 and R250,000. This reiterates the possibility that those who might ordinarily have qualified for loans over R250, 000 were not able to do so and thus had to settle for a loan of a lower value.
Naturally, higher living costs tend to affect those within lower income more severely, and something of the impact can also be seen on the bureau. There was a 32% decrease in the number of fixed term (short term) loans that were classified as current as at the end of the first quarter and, as is indicated in the above table, there was an 11% increase in the number of fixed term (short term) loans that were 3+ months in arrears.
“There are, no doubt, other factors at play which would influence consumers’ ability to obtain loans of various kinds. These could include stricter lending criteria implemented by credit providers due to new regulations and concerns over consumer risk,” comments Jacobus Eksteen, Senior Data Analyst at Compuscan.
According to Compuscan, the number of credit-active consumers remained reasonably steady, with a 2% increase, from Q4 2015 to Q1 2016, to 27.5 million consumers with accounts, judgments or notices listed on the bureau. Amongst these consumers, there were 70.7 million accounts recorded on the bureau as at the end of the first quarter or the year, and of these only 48.6 million were classified as paid up to date. This reflects a 10% decrease, quarter-on-quarter, in the number of current accounts listed on the bureau.
While debt in and of itself should not be seen as negative, it does become a concern when consumers over-extend themselves and are not able to properly manage their credit commitments. As it stood at the end of the first quarter, there were approximately 146,000 consumers that had been declared over-indebted and that were subject to the debt counselling process. It was additionally revealed that there were 2.8 million consumers that were 3+ months in arrears (worst status on their report) with account payments.
“Although we encourage access to credit due to the fact that it opens up doors to opportunity which ultimately benefit the economy, the onus is on the consumer to honestly declare the correct information during the affordability assessments carried out before credit is granted. This is imperative to ensure that they don’t take on more debt than what they can handle,” adds Eksteen
Eksteen concludes: “On a positive note, we have seen what we believe is a greater awareness amongst consumers of the need to improve their credit behaviour. We recorded a 15% increase in the total number of credit reports requested from Compuscan during the first quarter. Monitoring one’s credit record is an important way of remaining on top of one’s credit commitments – and, I believe, one of the fundamental ways of taking steps towards a flourishing credit industry that positively impacts the economy.”