As repayment holidays have come to an end, more consumers worry they won’t be able to honour more of their debt agreements. (iStock)
- Transaction Capital Risk Services’ Consumer Credit Rehabilitation Index shows a 2.5% decline in consumers’ propensity to pay in the three months to end-June.
- TransUnion’s Wave 5 Report shows that, since bank payment holidays ended in June, consumers are concerned about not being able to pay retail accounts and personal loans.
- Many are paying only a partial amount of what they are supposed to be paying.
As banks prepare to present their financial results for the period ended in June, more reports point to the possibility of significant surge in bad debts as more people lose income.
On Thursday, Transaction Capital Risk Services (TCRS), sister company to minibus taxi financier SA Taxi, said a combination of job losses and disruption in many creditors’ collections processes had raised the possibility that more consumers will default on their debt, despite relief measures like record-low interest rates and bank repayment holidays that ended in June.
TCRS, which specialises in debt collection and buys books that have been written off or are close to being written off by credit providers, published its Consumer Credit Rehabilitation Index (CCRI) for the second quarter of 2020.
The index, which measures consumer credit rehabilitation prospects, showed that South African consumers’ propensity to repay their debt deteriorated by 2.6% compared to the second quarter of 2019, and by 2.5% when compared to the first three months of 2020. The index samples approximately four million consumers in credit default from TCRS’s proprietary database.
A fall in propensity to repay debts means more people are likely to have defaulted on some or all their debts or will soon do so. The fact that some households took on more debt when most industries were not operating during the hard lockdown means that household debt levels are now likely to be higher than the 72.8% reported in fourth quarter of 2019, further exacerbating propensity to repay debt, said TCRS.
“The consumer’s propensity to repay debt is highly correlated to employment levels. Consumer sentiment is weak; employment remains under pressure; and key consumer support measures such as the temporary employee relief scheme and debt repayment holidays will expire in the upcoming few months – all adversely impacting the consumer’s ability to service debt,” said Transaction Capital CEO David Hurwitz.
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TransUnion, which has periodically been tracking consumers’ ability to pay their bills and debt since the lockdown began, said while in its previous surveys, consumers were more concerned about paying rent and utilities, since bank payment holidays ended in June, retail or clothing accounts and personal loans had become their biggest headache now.
“Consumers continue to pay less down against existing debt to preserve cash flow. Almost 38% of affected consumers say they are paying only a partial amount they can afford,” wrote TransUnion in its latest report.
Some 15% of all those who struggling honour their debt have refinanced or renegotiate their agreements and 20% of those who had repayment holidays would like to have the arrangement extended.
Banks are prepared
But one of the country’s largest banks, FNB says while many clients are indeed asked to restructure their debt after the expiry of the payment holidays, struggling, there is no course for alarm yet.
FNB CEO, Jacques Celliers said banks have very mature processes to handle these situations and the liquidity that is in the system during this crisis will help.
“Over the 180-odd years, we are used to this journey of people restructuring their finances. When there are droughts in the farming communities, for a year or two there is no income. We’ve got very mature processes to go through these things,” he said.
Celliers is however of the view that the interest rate cuts, reduced living expenses as people travel and spend less will limit the extent of defaults from customers. He added that people who lost their incomes at the beginning of the lockdown is trying to get work and trying to rebuild now.
“I don’t think we are in that chaotic phase yet and I don’t think we will get be there. I think we are well provided. We put enough resources aside. Our balance sheets are strong. You will see when all the banks results come out. Everyone would have done what they needed to do.
“But you are right, the volume of people who are now going through the first month of trying to get their payment behaviour back on track, that’s our next journey,” said Celliers.
FNB has not stopped helping customers just because the payment holidays have ended, but the only change now is that relief is provided on individual basis to those who continue to need it.
