Recent increases in the repo rate add an additional layer of stress onto already cash-strapped consumers. According to credit information bureau XDS, caution will need to be the watchword for the rest of the year to avoid higher levels of debt distress.
The latest credit stress report compiled by leading analytics consultancy Eighty20 in collaboration with XDS, covering the period to the third quarter of 2022, provides a cautionary tale for South Africa’s credit market. The report is based on outputs from a jointly developed sophisticated customer segmentation and analytics platform that fuses demographic, credit and alternative data sources. Together, these provide a view of the impact that changes in economic factors have on customers within these segments.
“Whilst the percentage of the overall credit active population with an account in default (3 or more payments missed) has decreased year on year, the state of some of the underlying segments is not as good. Home and vehicle asset finance defaults for the middle class, for instance, increased by 20%. Even the wealthier segments are beginning to feel strain, with 10% of their loans moving into default,” says Mettus’ Group Executive of Strategy and Analytics, Premlin Pillay.
According to the report, the segments with the highest proportion of defaulters are “Mothers of the Nation” (low income, female grant recipients, underemployed); “Hustling Males” (mostly male, average age 34, low income, very little credit and underemployed); and the Mass Credit Market (the employed, lower middle class, mostly female, high usage of retail credit). These segments make up more than 50% of people with at least one loan in default.
“It is certainly getting very tough out there and managing credit stress will be critical if South African consumers are to avoid greater defaults and bad debts from here. Healthy credit is good for any market and a developing market like South Africa needs to have investment and savings to ensure sustainable growth levels. The last thing you want is to see debt distress grow unchecked and in turn slow down opportunities, growth and prevent families and businesses from reaching their dreams,” says Pillay.
Pillay says knowing your credit score is a powerful step in the process of managing debt and relieving stress. To help consumers, XDS has developed a useful free to use tool called Splendi which is available via their website.