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Staff Writer

Middle class South Africans feel the weight of servicing their debt



Eighty20 has published its latest report for the fourth quarter of 2023, focusing on the credit sector and its implications on the economy.


During the previous quarter analysis, there was a glimpse of positivity in South Africa’s credit sector, a rare occurrence in recent years. However, this optimism was short-lived as the fourth quarter presented a mixed bag of indicators, it said.


While there was a slight increase in the unemployment rate and inflation, and a decrease in consumer confidence, there was a notable improvement in the credit sector with a decrease in the percentage of loans in arrears.


The economy rebounded to its pre-Covid level by mid-2023, with a modest growth of 0.1% in the fourth quarter, thereby averting a technical recession.


However, other regions like the UK have not been as fortunate, slipping into a technical recession, reflecting the grim global economic outlook.


Key developments from the fourth quarter include:


  • Average outstanding balances saw a quarterly decrease for the first time since Q1 2020, dropping by 0.7%.

  • Over the past two years, there has been a decline in total loan balances for vehicle asset finance (VAF) among the Middle Class, resulting in fewer individuals holding VAF loans.

  • Home loan balances experienced a decrease for the first time since the onset of the Covid lockdown.

  • Retail sales saw a surprising increase of 2.7% year-on-year in December, although overall, there was a decline of 1% compared to the previous year. Additionally, there were 1.25 million new retail loans during this quarter.


The average ratio of monthly instalments to net income for South Africans stands at 47%, indicating a significant portion of income is allocated to debt servicing.


Among the middle class, this ratio is nearly 80% going towards instalments, marking a substantial increase over the year.



The credit market is under strain, with major banks reporting increased credit impairments affecting their financial results, said Eighty20.


Stricter measures in extending credit to new customers are being implemented, alongside efforts to write off overdue debts, contributing to a decrease in the proportion of loans in arrears.


These observations mirror trends evident in the credit data. Banks and retailers are adopting stricter measures in extending credit to new customers, alongside writing off overdue debts.


"Interestingly, this trend could account for the second consecutive QoQ decline in the proportion of loans in arrears, currently standing at 36.4%, as banks eliminate bad debts from their records," said Eighty20.


Unsecured loans growing, larger secured loans are not


There were more than 600 000 net new loans in the quarter, which reflected the trend of large loan products (home and car loan) typically reserved for middle class, 'heavy hitters' and 'comfortable retirees' shrinking significantly.


Home loan market struggling


While there has been a 6.4% growth in home loans by value YoY, the total value of home loans decreased this quarter for the first time since the Covid lockdown.


The number of home loan holders has grown 1% YoY, with the number of home loans growing 1.7%.


Average instalments on home loans are up 13%, and overdue balances up 56% YoY.


There are roughly 200 000 new home loans issued per year in South Africa. The rate at which new loans are being issued has been dropping, with new home loans as a percentage of credit active individuals showing a decrease of nearly 6% over the last two years.


"This is unlikely to change until interest rates come down, presumably in mid-2024," said Eighty20.

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