South Africans still want credit – and most can pay it

National Credit Regulator (NCR) data show that demand for consumer credit remained strong in Q2, while the gross debtors’ book shows no big sign of deterioration in arrears.

The big interest rate cuts that followed the pandemic shock spurred a sharp rise in demand for credit as the economy gradually reopened, but the pace of increase is now tapering off as rates rise.

After hitting a record high in Q1 22, the number of new credit applications was broadly unchanged at 13.1 million in Q2.

Still, this is about 14% higher than the average quarterly number of new applications in 2019.

However, the supply of credit is still a constraint.

The rejection rate on new credit applications has risen slightly in recent quarters, reaching 66.7% in Q2 from 66.4% in Q1. It is much higher than the 57% average in 2019.

“We suspect that these higher rejection rates reflect lender concern about the creditworthiness of low- to middle-income consumers,” Absa said.

The lower creditworthiness is partly driven by job and income losses due to the pandemic.

The value of new loans from banks and other credit providers increased by R146.6 billion on a seasonally adjusted basis, equivalent to quarterly growth of just 2.1%.

It was mostly driven by mortgage advances, credit facilities like credit cards, store cards, bank overdrafts, and unsecured credit.

An age analysis of the gross debtors’ book shows no big deterioration in arrears.

In value terms, the proportion of the gross debtors’ book in arrears – i.e. more than three months overdue – fell marginally to 12.9% in Q2 from 12.8% in Q1.

However, the proportion of the number of accounts in arrears increased marginally to 25.2% in Q2 from 24.8%.

It suggests that the slightly higher number of accounts in arrears are smaller-value accounts.

The different categories of credit also showed no worrying signs.

In the mortgage book, arrears were unchanged at 8.7% of the book, while arrears on non-mortgage secured loans were up marginally by 0.2pp to 12.9%.

Overall, consumers appear to have remained fairly resilient in Q2.

However, the long release lag of the data makes for a backwards-looking read.

The repo rate has risen by a further 1.5% since the end of Q2, which has undoubtedly added to the strain on consumers.