BUSINESS NEWS - Consumers usually start every year with higher debt levels following a free-spending holiday season, with 2022 bringing more challenges than usual.
“We are facing higher inflation, rising electricity, petrol and food prices, and higher interest rates,” says Tonia Pavlou, deputy CFO at credit provider RCS.
It is telling that Pavlou warns about an over-indebted population, seeing that RCS is in the business of supplying credit to consumers, and in particular store cards to be used at the majority of retail chains in SA.
“The statistics are concerning, pointing to consumers having taken considerable strain during the first quarter of the year. Historically, overspending during the festive season has a domino effect on the first few months of the year.
“A recent report by market research consultancy Eighty20 found that members of the mass credit market in SA can be characterised as ‘stressed’ in relation to their level of indebtedness. The mass credit market accounts for the majority of credit active people, 82% of whom have retail credit and a fifth of whom have credit cards.
“Typically, this market has a monthly instalment to net income ratio of over 70% or at least two loans that are in default,” says Pavlou.
Credit data available at the end of December 2021 showed that the middle class is sliding further into debt, according to Eighty20 Consulting’s recent Credit Stress Report. “Vehicle asset finance and credit cards were most affected, with overdue debt increasing 35% and 20% respectively year on year.
“After dropping by nearly 30% over the past four years, the number of outstanding loans stabilised, with almost no increase in real loan accounts, although retail trade defied expectations in December with 3.1% growth from the previous year,” according to the report.
Eighty20 notes that the number of credit accounts at least nine months in arrears (which make up half of all loans in arrears) continues to grow, albeit at a slower pace.
It says the proportion of loans in good standing has remained stable over the past year at 62%, neglecting to point out that nearly 40% of all loans are in arrears.
That equates to a lot of people with financial problems.
