The latest 25 basis point increase in the repo rate, taking the prime lending rate to 10.75%, adds an additional layer of stress onto already cash-strapped consumers. According to credit information bureau XDS, part of the technology and analytics firm Mettus, caution will need to be the watchword for the rest of the year to avoid higher levels of debt distress.
The latest credit stress report compiled by leading analytics consultancy firm Eighty20 in collaboration with XDS, covering the period to the third quarter of 2022, provides a cautionary tale for South Africa’s credit market.
“Whilst the percentage of the overall credit active population with an account in default (3 or more payments missed) has decreased year on year, the state of some of the underlying segments is not as good. Home and vehicle asset finance defaults for the middle class, for instance, increased by 20%. Even the wealthier segments are beginning to feel strain, with 10% of their loans moving into default,” says Mettus’ Group Executive of Strategy and Analytics, Premlin Pillay.
According to the report, the segments with the highest proportion of defaulters are “Mothers of the Nation” (low income, female grant recipients, underemployed); “Hustling Males” (mostly male, average age 34, low income, very little credit and underemployed); and the Mass Credit Market (the employed, lower middle class, mostly female, high usage of retail credit). These segments make up more than 50% of people with at least one loan in default.
“It is certainly getting very tough out there, and managing credit stress will be critical if South African consumers are to avoid greater defaults and bad debts from here. Healthy credit is good for any market, and a developing market like South Africa needs to have investment and savings to ensure sustainable growth levels. The last thing you want is to see debt distress grow unchecked and, in turn, slow down opportunities, growth and prevent families and businesses from reaching their dreams,” says Pillay.
Pillay says knowing your credit score is a powerful step in the process of managing debt and relieving stress. South African consumers are entitled to one free credit report per annum in terms of the National Credit Act, which can be applied for at local credit bureaus like Experian and TransUnion.
XDS has also developed a useful free to use tool called Splendi, which can calculate credit scores, grouping all open accounts and loans in one place and displays risk profiles and percentages of debt used and paid back.
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