South Africans are increasingly turning to credit to fund their lifestyles with the South African credit market growing at its fastest pace since Covid-19. Consumers are also increasingly unable to pay back their debt.
This is according to the Eighty20/XDS Credit Stress Report from the fourth quarter of 2022, which tracks consumer credit data across South Africa’s 18.7 million credit-active individuals.
While the value of loans in South Africa is relatively flat year-on-year, credit increased sharply at the end of 2022.
In the final quarter, there were 800 000 new entrants to the credit market in South Africa, the highest quarterly figure since the pre-pandemic levels in 2019.
Credit card balances were up 12% year-on-year across the nearly 10 million active credit card accounts in South Africa.
The Eighty20/XDS analysis showed that South Africans are increasingly taking on credit to fund their lifestyles which cannot be supported by income alone.
This has resulted in a substantial uptick in debt among South Africans struggling to pay it back.
South Africans are struggling to pay back the money
Charnel Collins, CEO of National Debt Advisors (NDA), said the increasing number of South Africans unable to pay back their debt directly results from Covid-19 and its related lockdowns.
Collins says the financial pressure from the lockdowns in 2020 and 2021 resulted in South Africans “turning to credit and then seeking debt relief when the credit can no longer be afforded”.
However, in contrast to expectations, applicants seeking debt relief declined in 2020 and 2021 when lockdown restrictions were their most severe.
This is because of the corresponding increase in unemployment during that period.
As one needs to have an income to qualify for debt review, an increase in unemployment reduces the number of people eligible for debt review and thus reduces debt applicants.
NDA’s analysis is supported by the Credit Stress Report, which shows that 1.5 million loans were defaulted on in the last quarter of 2022, with the number of loans in arrears up to 18.7 million.
Eighty20/XDS’ analysis indicates that nearly half of all credit-active persons have at least one loan in default.
However, the Report also shows that accounts in good standing increased at the end of 2022, albeit slower.