Debt defaults ballooned in quarter four 2023 as mid-to-high affluence South African consumers with home loans, vehicle loans, personal loans, credit cards and retail loan accounts increasingly struggled to keep up with their repayments, according to the Experian Consumer Default Index (CDIx) released yesterday.
Debt defaults ballooned in quarter four 2023 as mid-to-high affluence South African consumers with home loans, vehicle loans, personal loans, credit cards and retail loan accounts increasingly struggled to keep up with their repayments, according to the Experian Consumer Default Index (CDIx) released yesterday.
The index revealed that rolling default behaviour deteriorated from 3.97 to 4.68 – a relative change of 18%.
The CDIx also highlighted that all product-specific CDIx metrics changed for the worse year-on-year, with Home Loans and Credit Cards showing the most significant deterioration.
This suggested that mid-to-high affluence consumers, who typically qualify for these high-end credit products, were finding it increasingly difficult to repay debt and continue to make extensive use of their credit cards.
Jaco van Jaarsveldt, Experian’s head of Commercial Strategy and Innovation, said these findings had significant implications for financial institutions operating in South Africa.
“With an increased risk of defaults, particularly in home loans and credit cards, banks and other lenders may need to reassess their risk management strategies and lending criteria,” Van Jaarsveldt said.
For example, on Monday Absa for the financial year ended December flagged that its credit impairment charges increased by 13.4% with consumers under financial strain.
Furthermore, the report revealed that the higher-affluence consumer groups had been under increasing pressure to honour their debt commitments, leading to a surge in Debt Review applications. This indicated a growing demand for financial counselling and debt management services.
One of the significant points regarding the cost of living had been the costs associated with electricity – both from an Eskom tariff perspective and an alternative electricity perspective such as generators and solar, which were becoming increasingly prevalent in the face of continued load shedding, Van Jaarsveldt said.
According to the index, the prime lending rate had remained unchanged since April last year.
Through sustained high interest rates, the South African Reserve Bank aimed to get the consumer price index (CPI) back to 4.5%.
“The rapid rate at which interest rates have increased and have now been sustained for the last 10 months has been putting immense strain on credit-active consumers –particularly those consumers with exposure to secured credit, like homes and vehicles. This pressure has also been felt by younger consumers who are relatively new to the credit world, for whom having to navigate through times of sustained high interest rates is new territory,” he said.
The CDIx said the appetite for consumer credit has shown an increase in the third quarter of last year – as per data prepared by the National Credit Regulator. The sustained high application levels suggested that consumers were looking for credit to cover the shortages in their cost-of-living expenses, the report noted.
Approval levels remained low at 31.1%, which meant that more than two-thirds of applications were rejected. This non-approval was partly attributed to consumers’ inability to afford additional credit commitments, considering the cost-of-living pressures they were facing.
Van Jaarsveldt said Experian advised consumers to exercise caution in this challenging financial environment.
“It is more important now than ever before that consumers carefully consider their ability to repay before taking on additional credit and seek advice from financial institutions who granted the facilities, if they find themselves struggling to meet their debt obligations.”
According to Statista, in the third quarter of last year, consumers in South Africa spent an estimated R3.07 trillion in total, which demonstrated a continuous decline from the first quarter of last year.
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