How South African debtors have coped with lockdown
With South Africa’s state of disaster coming up for review again this week, Eighty20’s Credit Stress Report for Q2 2020 – compiled in collaboration with XDS – offers some insight into how South Africans have managed their debt in light of the economic impact of lockdown during Q2 2020.
Quarter Two (Q2) was a depressing quarter in South Africa, with GDP contracting 16% Quarter on Quarter (QoQ) and at least 2.2m jobs shed from the labour force. The Consumer Confidence Index hit its lowest level in 35 years. The 14% reduction in the fuel price, 150bps reduction in repo rate to 3.75% and the promised R500 billion in relief did little to ease the severe strain that Lockdown put on the economy and consumers.
This quarter saw a 3.6% decrease in the number of loans in the market (from R54.1 million to R52.1 million). This movement has been driven largely by a 20% reduction in new loans granted (480,000 in Q2). Of the new loans granted, 96% was unsecured.
The Retail Picture
By far the largest debt category in terms of number of loans is retail credit (nearly half of all loan products are retail credit). The lockdown put an end to a five-year positive trend in retail sales, with a 60% reduction in the number of new retail accounts opened compared to the previous quarter. It was impossible to make payments in store or sign up for new cards at most retailers, which resulted in 140,000 fewer loans taken out during lockdown. The overdue balance on retail accounts increased by R1.5 billion.
“While retail sales did recover substantially in May, we’ve seen a decrease again in July which suggests we haven’t seen the worst yet,” says Andrew Fulton, Director at Eighty20. In South Africa, 7 out of 10 economically active women have at least one retail account. Given this strong gender bias in retail credit holdings and the poorer experience of these types of loans, we see that at an overall level men and women have markedly different credit profiles. This is especially true in some age groups, with almost 70% of defaulters in their 20s being women.
In comparison, asset finance repayments are more of a priority for South Africans. “People often stop making payments on their store and furniture accounts until they need more credit, whereas they don’t want to lose their house or car so naturally these payments would be made first,” Fulton explains. Accordingly, the increase in arrears on mortgages was low this quarter but vehicle asset finance saw a 24% increase in overdue balances year on year, which is concerning.
The number of loans in arrears increased by 300,000 – a 1.4% increase QoQ. Notably, accounts 3-6 months in arrears increased by 12%. Despite little change in the number of loans compared to this time last year, the overdue amount has increased by almost R17 billion, which is about 10% of all overdue debt. The overdue balance currently makes up 9% of the roughly R2 trillion in current balances, which is up by a percentage point from last quarter.
Consumers new to Credit Stress
As expected, the level five lockdown impacted consumers on both financial and confidence fronts. Those who remained employed with salaries unaffected may have curbed spending and deleveraged their positions. This is evidenced in the decrease in overall outstanding balances. Also impacting these levels were lenders increased conservative risk appetites due to the prevailing economic uncertainty. A resultant impact of the lockdown was an increase in the number of individuals going into arrears for the first time in particular industries, most notably secured lending.
“The true level of distress will likely manifest in the coming months as payment holidays run their course.“ says Ryan Smith from XDS
Recovery may be some way off
The good news for vehicle financiers and retailers is that, by the end of Q2, retail store accounts and vehicle finance were almost back at pre-COVID levels. There was also a 24% increase in the number of people settling their debts early when compared with this quarter last year.
“Anecdotally, there are some reports that banks are giving bonds more easily and we are hearing that the second-hand car market has increased significantly.” Fulton says.
He remains cautious, however. “It will be interesting to see what the Q3 report shows, as more successful loan applications don’t necessarily mean people will be able to continue making payments if they lose their jobs. We know that the economy shed 2.2 million jobs in the past quarter, so banks and retailers will probably remain more cautious for some time.”
“There are about 1.7 million fewer loans in good standing,” Fulton points out, “and the number of consumers in good standing have decreased by about half a million. So, while lockdown regulations have eased dramatically and, judging by activity in public, it may seem as if we’re getting back to business as usual, longer-term impacts will still be showing themselves over the next two quarters and probably well into 2021.”
Eighty20 and XDS Credit Bureau have partnered to create a quarterly Credit Stress Report. This report highlights the impact of economic forces on the South African consumer, with particular focus on consumer credit behaviour. All credit data in this report was sourced from the Eighty20 / XDS Online Credit Portal.
In addition to providing all Credit Bureau data on a web-based portal, Eighty20 can also triangulate this data with internal data and external secondary data to assist with personalisation and segmentation. We have also created a Financial Wellness Diagnostic that gives employers a view of staff indebtedness, levels of financial stress and the resulting cost to the company. The online data portal contains aggregated information on all credit users in South Africa. It allows users to see the distributions of credit products and users by age, gender, income, location, presage score, credit holdings, impairment and arrears status, etc. If you are a SACRRA member, you can drill down and see the credit holdings of your customers, where they have taken out other credit, and how they are performing on those products. Call us for more information.