Bad debt soars in South Africa

Almost half of 25.1 million credit consumers in SA are behind on payments

Impairments by consumers and businesses at the country’s four big commercial banks have increased dramatically – in some categories by more than 70% – compared with the previous reporting period.

This is evident from the latest financial results seasons for banks and PwC’s annual report on the South African banking sector, which shows that, for the year ending in December 2019, the combined credit loss ratio of the banks climbed by 14 basis points (20%) to 80 basis points.

For the full 2018 year, the ratio was 66 basis points.

Costa Natsas, head of financial services at PwC Africa, said the current ratio meant that banks expected an average credit loss of 80c for every R100 worth of loans or advances.

According to Nedbank’s results for the year ending in December, impairments had risen by 66%.

Rasibe Morathi, Nedbank’s chief financial officer, told Fin24 that bad debt in the corporate and investment divisions had increased by 100%.

Its clients in the construction, cement, retail and telecommunications sectors were especially pressurised.

Impairments at Absa for the year ending in December also rose, climbing 24% to R7.8 billion year on year, reported Netwerk24.

The results, which were announced on Wednesday, show that bad debt on credit cards rose by 72% and on personal loans by 46%.

Earlier this week, FNB announced that impairments for the six months to the end of December increased by R910 million.

Bad debt on credit cards was 77% higher than in the corresponding period in 2018 and, for personal loans, it was 47% higher.

At Standard Bank, impairments for the full year ending in December rose by 23% to R7.96 million, according to BusinessLive.

Ronelle Kind, general manager of member engagement solutions at Momentum Corporate, said that about 9% of consumers’ disposable income was spent on interest payments to service debt.

If capital is included, about 20% of the average consumer’s disposable income is spent on debt repayments.

For people with bond and car payments, this percentage was much higher.

The latest figures from the National Credit Regulator (NCR) show that the number of consumers with credit records who had had outstanding account payments for three or more months by the end of September was 5.6% more on an annual basis.

That means that 10.8 million consumers were in arrears – 567 939 more than a year ago. Gross consumer debt is at about R1.9 trillion.

The NCR says consumer credit in the third quarter of last year was 6.32% higher than in the third quarter of 2018.

The category for unsecured debt (like credit cards and personal loans) shot up by more than 15% compared with mortgage debt and secured debt (where a loan is made available using an asset as security), which were 4.46% and 4.24% higher, respectively.

Neil Roets, CEO of the debt counselling company Debt Rescue, said they were preparing for one of the busiest years in the history of the business because so many people were in financial trouble.

He said the number of people who had applied for debt counselling over the past few years had seen double-digit growth.

Almost half of the 25.1 million active credit consumers in the country are behind on their payments, according to the NCR.

Roets said that credit cards and store cards, even for grocery stores that allow consumers to buy their monthly groceries on credit, are the biggest problem, followed by unsecured debt, such as personal and short-term loans.

Kind said that debt left consumers financially vulnerable and exposed. Many continue to incur debt to buy luxury goods they cannot afford, while others end up buying necessities on credit.

Momentum and Unisa’s quarterly index on consumer financial vulnerability (CFVI) shows that overall financial vulnerability was slightly better in the third quarter of last year – at 50.46 points – compared with the second quarter’s 50.35 points.

While this means they were slightly better off, they were still at risk of losing control of their financial situations.

About 69% of the entities that work with consumers, and who participated in the CFVI study, indicated that consumers were living above their means.

Kind said consumers were battling to make it to the end of the month on their salaries and wages.

Even if the tax relief that was announced during the budget speech last month increased their disposable income, few would feel the benefit of this because they already had too much debt and were behind on their repayments.

Kind said that, even when consumers felt financially exposed, they did not change their behaviour to live within their means.

Roets said that a red flag should go up if you need to borrow money to repay debt.

According to Roets, South Africa has an excellent debt review system and process to protect consumers – the faster you get help, the faster you can be helped.

It’s also the only country in the world where your mortgage debt can be subject to debt review.

Kind said there were other options apart from debt counselling for struggling consumers.

Consumers who are battling should speak to their financial institutions to arrange alternative payment agreements.

It’s also advisable to speak to an accredited financial adviser who can give you practical advice.

Natsas said South African banks’ capital and liquidity ratios were much higher than what regulations required, which was indicative of discipline and of resilient balance sheets.

Banks said that, according to their risk appetite levels, the increase in bad debt was still within the acceptable range.

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