This quarterly report highlights the impact of economic forces on the South African consumer, with particular focus on consumer credit behaviour.
As South Africa’s confirmed COVID-19 cases crossed the 1 million mark in Q4 2020 and a new variant sent the country back into Level 3 lockdown, South Africans are still battling with debt pressure. South Africa’s economy will remain under pressure in 2021 following a difficult 2020. The economy was forecast to contract by almost 8% QoQ, and real GDP growth forecasts for 2021 range from 2.3% to 3.8%.
The fourth quarter saw an increase of R10 billion in overdue loan balances, bringing the total increase in overdue balances for 2020 to over R33 billion. The largest increase this quarter was seen for mortgages, where the overdue balance increased by 18% and has almost doubled year on year from R6bn to just over R12bn. This means that 1 in 10 mortgages were behind in payments at the end of 2020, despite a decrease in both the current balance and the total number of home loans.
As of 2020 Q4, 62% of credit account loans are in good standing compared to only 4 in 10 in Q3. However, 18% of loans are 9+ months in arrears, accounting for 46% of all loans in arrears.
“Consumers who have loans 9+ months in arrears are unlikely to recover,” says Andrew Fulton, Director at Eighty20. “The large number of loans in 9+ months in arrears is cause for concern, with there being 206% more loans in this category compared to the next closest arrear bucket.” The loans in this category represent 8% of the current balance, and 79% of the total overdue balances.
In Q3, the overdue balance on mortgages increased by R550 million compared to Q2 and saw a 76% increase year-on-year. Despite the economic challenges created by Covid-19, Q4 saw the number of home loans taken out in 2020 increase by 7% YoY, and the total value of these loans increase by 40%.
“A decrease in the number of new mortgages in the sub R1m segment could be due to the depressed rental market and the increased affordability due to the low prime rate,” says Fulton.
For home loans between R1m and R3m, Q4 saw a significant increase in the number of loans taken out by those under 35, where the number of loans increased by 29% YoY and the purchasing trend of this age group seeming unaffected by Covid-19. All other age groups showed a decrease in the number of new home loans taken out, despite a general upward trend over the course of the last four years.
Q4 again saw an increase in the proportion of 18 – 24 year olds defaulting, with a 14% YoY increase. All other age groups showed a decrease in the proportion defaulting this quarter. In this quarter 18-24 year olds now have the highest proportion defaulting, overtaking those aged between 25 – 34.
“The youth in South Africa appear to have an uphill battle ahead of them, financially speaking, especially considering that the unemployment rate hit a high of 30,8% in Q3, and 61.3% for youth,” Fulton says.
Other blocks to 2021 growth include energy supply challenges, the delayed Covid-19 vaccine roll-out, and unresolved fiscal issues. Real 2020 Q4 QoQ GDP is forecast to slow to 0.5% (2.5% QoQ annualised).