Pay day woes bite as economists predict the worst is still to come

Durban – It’s a bleak payday for millions of South Africans who still have jobs, and it’s going to get worse.

One expert warned the global economic crisis caused by the coronavirus pandemic could be as bad as the Great Depression of 1929.

Thousands of people have taken advantage of payment holidays banks have offered to approved clients to try to tide them over the Covid-19 lockdowns.

Debt counsellors expect a surge in people seeking help.

Trevor Armfield of Diverse Debt Counsellors in Durban called on banks to show compassion to the millions of people he expects would be in distress as jobs are lost and incomes are slashed in the months ahead. “People are now in limbo,” he said.

He and Elizabeth Bassage, a director at Debt Mentor, said people were not knocking on their doors yet. However, once people applied for debt review, allowing them to pay off debts over a longer period, earn a liveable income and not lose assets, they needed to show proof of income which they might have when they applied but could be without a couple of months later.

Armfield feared people could end up applying for further loans to repay existing loans and debts.

Dawie Roodt, chief economist of the Efficient Group, has forecast that more than a million South Africans could expect to lose their jobs over the next few months in a recession that would be at least as bad as the Great Depression of 1929 and much worse than the crash of 2008.

“We are going to see at least a million consumers lose their jobs and what is even worse is the fact that it is going to take a long time to recover,” he said.

Debt Rescue chief executive Neil Roets said there was little to no chance that either government or financial institutions were going to assist in bailing out indebted consumers. “What we’re hearing at the moment is mostly public relations noise from the banks. Once the virus has been defeated, they will come begging for their pound of the flesh because that is the nature of capitalism. There is no chance that government is going to come to the rescue because it simply does not have the money to do that,” Roets said.

He warned consumers against further hoarding.

“There is absolutely no reason to believe there will be shortages of food in the near future. We have seen widespread evidence of consumers buying bulk food on credit and store cards – both of which carry high-interest rates.”

Absa said it had received a positive response to its payment relief programme in the retail market, with a meaningful portion of customers making use of the offer.

“Many customers who are in a position to continue paying have chosen to do so, while some have also opted for other options, for example, credit life cover. As of April 17, close to 250 000 customers have opted-in for the payment relief, with 91 000 home loan customers and about 77 000 vehicle finance customers opting for payment relief respectively. We expect these numbers to increase over time,” the bank said.

Raj Makanjee, chief executive of FNB Retail, said that since the beginning of the month, nearly 150 000 applications had been received.

“From those who have applied, 34% are customers in our entry-level income segments (Easy and Gold) and 27% of them already have contracts available to access our cash flow relief.

“Overall, roughly 80 000 FNB customers have been offered contracts for cash flow relief and/or credit insurance while the balance of applications is still under review with a high probability of being successful, ”Makanjee said

He said the bank was working with industry and government to find ways to help customers who may not qualify under the current criteria.

“We have also aligned to the National Credit Regulator’s guidelines by relaxing the debt review termination process for qualifying customers until June 2020.
“Customers in debt review should continue using this form of relief from their existing repayments and can contact their debt counsellor.”

Momentum insurance spokesperson Anneke Hanekom said: “We have received requests for relief across our businesses. Given that we are at the start of the economic impact of Covid-19, we expect the requests to continue.

“The percentage of clients requesting assistance will increase as long as the higher levels of lockdown remain in force. As the economy picks up again and people begin earning an income, we expect the requests to decline. We believe that continuing to provide life, health, and short-term insurance cover during a crisis is critical and that is why we provide as much assistance as possible while ensuring that our solutions are sustainable now and into the future.”
She said, “about 1% of clients had requested relief (thus far)”.

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