South African’s Drowning In Debt

John Vaughan (Financial Advisor) @ Lucid Living

Almost half of those with access to credit now have blacklisting, according to the latest statistics released by the National Credit Regulator.
Although the interest rate is at a record low, another 170000 consumers fell behind on payments in the past three months.
Bitten at the petrol pump, and with food and electricity prices rising, almost a fifth of them have fallen more than three months behind in servicing their debt.

But lending is still expanding at breakneck pace. In the past 15 months, the number of credit-active consumers has grown by one million.

Significant trends in the credit monitor include:
– The value of new mortgages granted increased by 9.69% quarter on quarter from R24.56-billion to R26.94-billion;
– Secured credit, which is dominated by vehicle finance, showed an increase from R31.62-billion for March to R33.03-billion for June (a quarter-on-quarter increase of 4.49%);
– Unsecured credit increased from R21.95-billion for March to R25.80-billion for June (a quarter-on-quarter increase of 17.55%); and
– Credit facilities, which consist mainly of credit cards, store cards and bank overdrafts, increased by 12.95% quarter on quarter from R15.29-billion to R17.27-billion.

Not only are South Africans finding it more difficult to keep up with payments, but for the first time since 2008 consumers’ indebtedness has grown.

The Reserve Bank’s September quarterly bulletin shows that the ratio of debt to disposable income has increased from 75.6% in March to 76.3% at the end of June.

While Nedbank economist Busisiwe Radebe was cautious about making a pronouncement from a single rise, she described consumers as “squeezed” and “very highly indebted“.

“There is no scope for consumers to take on more debt at this stage,” she said.

Reserve Bank data also point to an increase in the proportion of disposable income South Africans spend paying off their debt. It accounts for 6.9% of disposable income.

While it is not yet close to the 12.7% in the third quarter of 2008, it might creep that way if the interest rate is hiked or lending continues growing at the current pace.