Credit card boom in South Africa

Credit cards remain in high demand in South Africa, and commercial banks are increasingly willing to expand their supply.

This comes as other types of loans from the banking sector come under pressure, with banks hesitant to extend lending for mortgages, overdrafts, and vehicle and asset finance. 

In its latest Quarterly Bulletin, the Reserve Bank revealed which sectors banks have extended credit to so far in 2024. 

The Reserve Bank noted the growth in total loans and advances extended to the household sector moderated gradually from 8.0% in January 2023 to 3.2% in July 2024. 

This was due to elevated interest rates making debt less attractive and with banks also having tightened their lending criteria in response to a surge in default rates

Growth decelerated across most credit categories, with the slowdown noticeable in most unsecured loan categories.

A clear trend has emerged since the beginning of 2023, with financial institutions closing their lending taps in all areas besides credit cards. 

This has largely been driven by the continued poor performance of the South African economy, with companies, in particular, being unwilling to take on debt to grow their operations. 

Growth in general loans to households decelerated sharply from a post-pandemic high of 11.0% in January 2023 to a contraction of 0.9% in July 2024. 

Households’ utilisation of overdrafts remained volatile, with growth fluctuating between 0.3% and 3.2% in the first seven months of 2024. 

This was higher than the growth rates recorded during most of 2023, possibly indicating that households may have resorted to overdrafts to supplement their spending on essential goods and services

Another area of lending that has benefitted from rising pressure on consumers is credit cards, which have seen their demand remain strong as households look to maintain their lifestyles amid a rising cost of living. 

Households likely relied more on credit card advances to cover their monthly expenses as this was the only category to maintain robust growth in the first seven months of 2024, with growth fluctuating between 9.2% in January and 10.6% in July. 

The decline in most areas of lending versus the continued strong growth in credit cards is shown below. 

South Africa’s largest banks are gradually opening their lending taps as interest rate cuts and greater optimism around the country’s economy enable them to grow their loan books. 

Standard Bank and Capitec both think they have hit the peak of bad debt in South Africa. With the growth in delinquencies slowing, fewer clients are turning to debt-relief programmes. 

Coupled with improved confidence in the South African economy, Standard Bank CEO Sim Tshabalala expects banking revenue from lending to grow by mid-single digits over the year. 

“So, in other words, we’ve seen the worst of it as interest rates decline as inflation declines and consumer confidence improves. We should see a growth in the loan book,” he told Daily Investor. 

“The taps are open, and we are just waiting for more demand from individuals.” 

The most recent data from Standard Bank indicates that banks are beginning to meet the increased demand for credit, with a year-on-year increase of 52% to the end of August. 

Standard Bank’s head of credit, Tumelo Ramugondo, said the bank has also noticed a change in how consumers use their credit cards. 

“With living costs soaring in the past two years, these high volumes suggest consumers could be relying on credit cards more,” he said. 

“However, we’ve noticed that an increasing number of people are treating their credit cards as transactional accounts.”

This trend suggests that the rise in credit card usage may be due to consumers looking to earn more reward points. Standard Bank, for example, enables clients to earn more UCount points when using a credit card than a debit card.