Almost half of the 25.1 million active credit consumers in SA are behind on their payments
- New studies show the impact of Covid-19 and the resultant lockdown have had a devastating impact on the debt burden of South Africans.
- The debt holiday offered by the banks at the start of the lockdown in late March 2020 had added R20.7 billion to the debt of the estimated 1.6 million South Africans who took advantage of this.
- As incomes have fallen, many households are trying to make ends meet with unsecured lending, according to DebtBusters’ debt index for the second quarter of 2020.
New studies of the impact of lockdown on the economy paint the
picture of a country locked in a downward spiral of rising joblessness and
debt.
In a recent survey, debt counselling firm DebtBusters found that
the debt holiday offered by the banks at the start of the lockdown in late
March 2020 had added R20.7 billion to the debt of the estimated 1.6 million
South Africans who took advantage of this.
Those who accepted the three month repayment holidays offered by
the banks, and suspended their payments on car, mortgage and personal loans,
will end up paying on average an extra R30 100 on top of what they already
owed, according to the results of the study
“In a country as over-indebted as South Africa, especially
at a time when the economy is contracting, this is enough to push people who
were just about making ends meet into a situation where their debt-to-income
ratio is unsustainable,” says Benay Sager, DebtBusters’ Chief Operating
Officer.
Credit bureau TransUnion issued a report in July on the
financial impact of Covid-19 on consumers, showing 77% of consumers had been
hit, following 84% in June. By August, 21% of those surveyed reported losing
their jobs as a result of the pandemic, compared with 10% in April. Nearly nine
out of ten of them said they were concerned about their ability to pay loans
and bills.
The TransUnion July 2020 survey found that while younger people
were hardest hit by job loss, older people were also feeling the pain. Even
those who have jobs often find it very hard to save. The average salary in SA
is R22 400, according to StatsSA’s Quarterly
Employment Survey for the first quarter of 2020 (this counts
only people who have jobs). But a July 2020 survey by ADNA Global involving
8,355 adults found that only a third of South Africans are currently saving
anything at all.
A representative survey completed in early August of 500 South
Africans by PayCurve, a financial technology platform, found many were taking
second jobs and expensive short-term loans to make ends meet after three months
into the lockdown. This additional funding was needed for emergencies such as
medical expenses and car repairs.
Some 11% of respondents said they spent more than half their
monthly income on short-term debt repayments, with 43% paying more than 20% of
their monthly earnings to short-term debt.
In a 2019 study,
the National Credit Regulator (NCR), which tracks all forms of debt, found that
unsecured debt had quadrupled to more than R220 billion over the last decade.
This is one of the key reasons behind the adverse credit ratings
accumulated by four out of ten South Africans. The NCR has not done any studies
of indebtedness since late last year – the next study will be available only in
October – but the situation is likely to have worsened considerably during the
lockdown.
As incomes have fallen, many households are trying to make ends
meet with unsecured lending, according to DebtBusters’ debt index for the
second quarter of 2020.
The current level of consumer debt is unsustainable, says Raeesa
Gabriels, founder of fintech company Level Finance. “SA has a poor savings
record because of the way the financial industry is structured. It chooses to
throw new debt on top of old debt. The worst thing is that many of the poorest
people in the country end up in the hands of loan sharks, where the interest
rates are exorbitant.”
