As the festive season nears, South Africa's economy is showing signs of optimism, fuelled by declining inflation, improved employment, and two recent repo rate cuts.
Personal default rates are down, and the two-pot retirement system has added over R35 billion to citizens' pockets, according to Eighty20’s latest Credit Stress Report.
The number of credit-active individuals grew by 1.4% YoY, with over 900,000 new credit market entrants this quarter.
Total loan balances reached R2.47 trillion, up nearly 2% YoY, driven by a 40% increase in credit card and retail credit balances.
Although credit card growth has slowed to 6% YoY, both credit card and retail loan balances continue to outpace inflation. Total overdue balances grew to R194 billion, with home loan and credit card overdue balances rising significantly.
This suggests consumers are increasingly relying on high-interest credit products to manage financial pressures.
On a positive note, the percentage of people in credit default has dropped by over 8% YoY. Despite these improvements, the concentration of credit is rising among fewer individuals, with home loan and credit card balances growing faster than the number of holders.
The middle class and more wealthy 'heavy hitters' control the majority of credit, but face concerning debt-to-income ratios, highlighting vulnerability even among wealthier groups.
Middle Class:
The segment grew by 2.2% YoY, reaching 3.6 million credit-active individuals. New loans totalled 989,000 this quarter, an 8% increase, with unsecured loans making up the majority. Unsecured loan balances rose to R132 billion. Overdue balances increased by 2.1% QoQ, driven by a 2% rise in unsecured loan overdue balances, totalling R79 billion.
Heavy Hitters:
This group grew by 4% to 2.15 million credit-active individuals. Loan balances rose by 1.3% QoQ to R1.61 trillion, with home loans accounting for R955 billion. New loans grew 6.6% to 563,000, and overdue balances increased by 1.5% QoQ to R46.2 billion, representing nearly a quarter of total overdue balances.
Comfortable Retirees:
Credit-active individuals increased by 5% YoY to 1.39 million. Loan balances grew 1.4% QoQ to R195 billion, with 164,168 new loans issued, an 11% increase. Overdue balances remained stable, and defaulters decreased by 1% QoQ to 284,225.
Home loan balances are growing at a rate nearly 50X that of home loan holders since 2021. Credit card balances are growing at a rate that is 11X that of credit card holders.
Credit card and home loans are the only two loan products that showed significant growth in overdue loan balances YoY, with overdue balances on home loans up 23% and credit cards up 9%.
Roughly 18% of the middle class and 34% of 'heavy hitters' have more than 6 loans, and a concerning 6% of 'heavy hitters' are paying instalments on 10 or more loans.
DebtBusters's Debt Index Q3 2024 finds that the average number of credit agreements per new customer is 7.1 in Q3 2024.
Benay Sager, executive head at DebtBusters said: “consumers need to spend 66% of their take home pay to service their debt, which is the highest recorded level since 2017”.
Eighty20 calculations put the average Instalment to Net Monthly Income Ratio for all South Africans at roughly 30%, but for the wealthier Heavy Hitter segment it is closer to 50%.
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