SOUTH AFRICANS ARE DROWNING IN DEBT

[From the ADRA online newsletter]

Millions of South Africans borrow to survive and are falling further
behind on their debt repayments.
Numbers from the National Credit Regulator show that, in the
past three months, the number of consumers with impaired
records increased by 189000 to 9.53million.
The CEO of the regulator,Nomsa Motshegare, called this increase
“concerning” yesterday as she released statistics for the quarter to
June.
“Impaired record” refers to a consumer and/or account that is
three or more payments or months in arrears, or that has been
handed over or written off, or against which a judg
ment/administration order has been granted.
In the past year the cost of fuel, electricity and municipal rates and
taxes have increased sharply.
Other gauges of consumers’ credit situations confirm the bleak
outlook.
TransUnion’s quarterly consumer credit index showed last month
that credit health had deteriorated for the fourth consecutive
quarter.
This happened as the government mulls over a controversial credit
amnesty for financially impaired consumers.
If adopted by the cabinet,the amnesty could come into operation
by October.
But banks have raised concerns that dodgy consumers would get a
clean slate and it would be much more difficult to calculate risk.
While more people are falling behind on repayments and are being
blacklisted, the regulator’s latest figures also reveal fewer
consumers have a good credit rating.
The number of consumers classified as being in good standing
dropped by 76000 to 10.55million.
Bernadene de Clercq, head of Unisa’s personal finance research
unit, said yesterday that consumers’ credit health seemed to be
slipping.In the unit’s latest consumer vulnerability index,the bulk of
consumers are described as at “a high risk of becoming financially
very exposed and financially vulnerable.The majority of consumers
therefore still feel that they do not have full control over their cash
flow.” When cash flow is under pressure, people default on
payments.
“Consumers are inclined to default on school fees first,followed by
rent payments and insurance,” said De Clercq.
The number of both over-indebted consumers and over-indebted
accounts had risen, she said. The number of impaired accounts
spiked by 790000 in the past three months and by nearly 1.4million
in a year,according to the regulator.
These were not good signs,said De Clercq.
“Based on the regulator’s numbers,it is evident that the number of
consumers with two months’ arrears has increased dramatically
since 2007 and this is very problematic as our other research
showed that they have a bigger chance of becoming further in
arrears than becoming up-to-date,” she warned.
Consumers’ thirst for credit has led to a boom in unsecured
lending over the past five years.Unsecured loans worth about R30-
billion were granted in the past year,the regulator revealed.These
loans usually come at higher interest rates, making repayment
difficult.
Consumers find themselves jumping from account to account to
try to avoid falling behind.
“This trend is confirmed by sustained levels of distressed
borrowing among households as the use of revolving-credit
facilities to supplement monthly budgets grows,” TransUnion said
in its consumer credit index report.
And there is no respite in sight for consumers .
The rand’s recent weakness against the dollar will probably spur on
inflation.
By next month,the petrol price could go up by about 80c a litre if
the rand and international oil prices stay at current levels,statistics
from the Central Energy Fund show.
Higher inflation might force the Reserve Bank to raise the interest
rate before the end of this year because it has a mandate to keep
consumer inflation below 6%.
Statistics SA will today release inflation figures for May,which most
economists expect to be at about 5.9%,touching the upper end of
the target band.
Higher interest rates would be a bitter blow for indebted
consumers.
According to De Clercq, consumers (especially lower-income
groups) appeared to be using some of the debt to finance
consumption but were not necessarily wasting money.
“[They] need it to survive due to the increases in living [costs].For
your lower-income groups,CPI was actually higher than 5.9% and if
their income streams did not increase with the same percentage,
they actually had less to maintain their expenditure commitments
with,” said De Clercq.
TJ STRYDOM