Credit Stress Report 2021
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Credit Stress Report 2021 Q1 

Recently the Credit Stress Report for Q1 for 2021 was released. Some really interesting findings came from the report and in this blog, we’ll do a small summary of them! This report mainly highlights the impact of economic forces on a typical South African consumer, with a particular focus on mortgages in this first quarter. 

All the credit data in this report was sourced from the Eighty20 / XDS Online Credit Portal.

Economic context and impact on consumer

Leading Indicator of the South African Economy vs. GDP: The IMF projected the global growth to be 6% in 2021 after a contraction of -3.3% in 2020 due to the Covid-19 Global pandemic. The Beeld consensus updated its projection for South Africa’s annual growth in 2021 to be only 3.6%. StatsSA data in Q1 showed that South Africa’s economy contracted by a grand total of 7% in 2020! The lockdown and various other restrictions enforced on our economy can be attributed to this contraction.

Retail sales index: The number of retail accounts grew for the first time in a year by around 156 000 accounts in this quarter. This coincided with the first increase in retail sales (2.3% in February) since before the first lockdown in March 2020. The biggest drivers of this growth were household furniture and appliances while pharmaceuticals, cosmetics and toiletries did not perform as well in terms of growth.

Consumer Price Index and Prime Rate: The Prime Rate remained unchanged at 7% with annual CPI of 3.2% in March 2021, up from a low 2.9% in February 2021. The main contributors to inflation were food (and other such consumables) and non-alcoholic beverages; housing and utilities; public transport; and miscellaneous goods and services.

Exchange Rate, Oil & Fuel Price: The rand remained resilient following February’s State of the Nation address and was supported by surging commodities, which kept it competitive against developed and emerging market currencies for the first quarter. Diesel and petrol prices had averaged at  R13.57 and R14.96 respectively, while crude oil prices added to late 2020 gains, rising significantly to $57.79 from $42.45 in Q4, propelled by large expectations of a quicker and stronger recovery in global growth.

Credit Journey: Everyone has a slightly different credit journey, with most individuals starting off with a retail store card, and depending on how their income grows, move through various unsecured credit products, credit cards, vehicle asset financing and eventually getting a mortgage.

While the age at which the largest number of people currently have a Retail Account is 31, for Mortgages, it is 20 years older around 50. People switch from Vehicle Asset Finance to Mortgages around the age of 40, and Credit Cards catch up to Unsecured Loans as people hit their 50s.

Consumer credit stress

Unsecured vs Secured Credit: The current balance on loans decreased in the last quarter by 0.2 % (R4.5 bn), while the overdue balance increased by only 0.2% (R360m) - the lowest increase in five quarters. The largest contributor to the increase in overdue balance was due to Unsecured Credit, which despite contributing to only 16% of the total current loan balance, makes up 56% of the total overdue balance of almost R183bn.

Credit Accounts and arrears status: The number of loans in good standing dropped by 7% last year (nearly 2.4m loans), while the proportion of mostly unrecoverable loans (9+ months in arrears) grew by 1.5% over the same period. The loss of jobs and poor employment rate in South Africa (particularly since the pandemic) is likely the main contributor to this unfortunate statistic.

Installment to Net Income by Industry: The average predicted income for all credit active public sector employees is 56% higher than the overall average, and although the installment-to-net-income for this sector has decreased by 3.1% Year on Year, the 3-year freeze on wage increases put forward by the finance minister could change things for this group dramatically.

Consumer Default by Age: This is an especially interesting one, the proportion of 18-24-year-olds in default increased a further 4% this quarter. If the trend in defaults over the last 3 years continues, 100% of the credit-active individuals between 18-24 will be in default by 2027. This is especially worrying considering the low employment rates amongst the youth!  

Consumer Default by Income: This quarter saw a continued increase in the proportion of defaulters across all income brackets, but there was particular trauma within the wealthy bracket. While there was only a 4% increase in the number of credit-active consumers earning more than R60 000 per month, the proportion of people in default increased from 6.9% to 7.5% (8% QoQ) in this quarter. Vehicle Finance suffered with nearly 1 in 3 defaulters being delinquent on a car loan.

Debt relief segment: Despite the number of credit-active consumers and loans that fell within the Debt Relief segment decreasing by 330k and 650k respectively. The overdue balance held by this segment increased by R780m (3%) with 3 in 4 consumers having at least one loan in arrears. * The Debt Relief Segment is affected by the National Credit Amendment Bill. People earning less than R7,500/month and have unsecured debt less than R50,000 can apply to have their debt suspended or extinguished.

This is just a brief summary of what the report mentioned fully. It is important to reiterate that you are not alone in facing financial difficulty. Clearly many South Africans have been hard hit and the statistics and findings released after this first quarter show that clearly.

If you feel lost and in need of financial assistance, especially in debt counseling, get in touch with Meerkat today!