South Africa’s R2.35 trillion time bomb

South Africa down

South Africans have around R2.35 trillion in debt and have taken on billions more in recent years to maintain their lifestyles amid rising costs and elevated interest rates. 

Consumers have come under immense pressure in recent years following a sharp rise in living costs after the Covid-19 pandemic. 

Food prices, for example, rose 9.2% in 2022 and 10.8% in 2023. Since food accounts for 17% of household expenditures, South Africans have had to cut back spending in other areas. 

Trade Intelligence’s Grocery Shopper Report for 2024/25 also showed that the price of electricity is 12.7% higher than last year. 

Fuel prices have also risen steadily over the past two years, rising 17.1% in 2022 and 5.1% in 2023. 

This has resulted in South Africans becoming more value-conscious and, in some cases, consuming less food to manage their expenses. 

However, many have also decided to burn through credit to maintain their lifestyles despite the rising costs. 

While banks have been closing their lending taps to limit the rise in non-performing loans, South Africans have shown an increased demand for credit cards to boost their spending. 

Data from the Reserve Bank shows that credit card advances’ growth remains resilient, increasing by 9% in 2023. 

The Reserve Bank attributed this to the growing reliance of households on credit to purchase necessities and support spending. 

This has increased total debt by 4% year-on-year while the number of credit-active consumers has only risen 2.1%, indicating that banks may be closing the lending taps to new clients but continuing to grant credit to existing customers. 

27.46 million credit-active South Africans have R2.35 trillion in debt from registered financial services providers. 

This is a ticking time bomb for South Africans and financial institutions as people are increasingly unable to pay back these loans. 

Trade Intelligence’s data shows that over a third of all credit consumers in South Africa have missed more than three monthly repayments or have an adverse judgment against them. 

This shows that many people, around 9.9 million, are under severe financial pressure and are unable to pay back their loans at the end of every month. 

Consumers are not the only ones feeling the pressure, with financial institutions increasingly feeling the heat of rising bad debts and unpaid loans. 

The Reserve Bank has raised interest rates by 475 basis points since November 2021, drastically increasing the cost of servicing debt. 

High interest rates increase the cost of servicing debt, as repayments on mortgages, car loans, and other forms of lending rise in lockstep with the repo rate. 

Commercial banks initially benefit from rising interest rates as they collect more interest from their existing set of loans, greatly increasing their profit margin. 

This is compounded by the fact that the interest rates offered on savings accounts do not rise as fast as the interest rates charged on loans. 

However, as interest rates remain elevated for longer, this effect wears off as clients begin to face pressure and cannot pay off their loans. 

The Reserve Bank’s data showed that the banking sector’s non-performing loans (NPLs)15 for the largest asset classes are at their highest levels in a decade and are still rising. 

It warned that this could manifest in rising credit losses, potentially reducing bank capital and profitability. 

In response, banks have been increasing their provisions to cover potential losses from rising non-performing loans. 

This has been a feature in the results of many of South Africa’s largest banks, which are very well-capitalised and prepared for any significant increase in defaults. 

South Africa’s ‘Big Four’ banks—Absa, FirstRand, Nedbank, and Standard Bank—are expected to take a R53 billion hit from non-performing loans in the current financial year. 

The Reserve Bank said despite this, South Africa’s banks remain very well-capitalised and are able to withstand this significant headwind. 


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