Credit cards booming in South Africa

Standard Bank has recorded a 52% year-on-year increase in new credit cards issued up to the end of August 2024 as consumers turn to debt to maintain their lifestyles. 

Despite this sharp increase, approval rates are still slightly lower than last year as demand for credit has soared, and banks are unable to meet all of the increased demand. 

As South African consumers came under increasing pressure from rising prices and elevated interest rates, banks began to tighten their affordability criteria to prevent a significant rise in non-performing loans. 

However, South Africa’s largest bank believes it has seen the peak in terms of its credit loss ratio at 92 basis points, with it anticipating a pick up in lending towards the end of 2024. 

Standard Bank’s latest results indicated that early delinquencies began to decline, and the growth of non-performing loans slowed. 

n an interview with Daily Investor, Standard Bank CEO Sim Tshabalala said the bank had never shut its taps, explaining that it had applied the same criteria to all clients across the past two years. 

What has happened is that consumers have come under increasing financial pressure and can no longer meet affordability criteria. 

Capitec has also flagged an uptick in lending, with CEO Gerrie Fourie telling Daily Investor that it has begun to open its lending taps after two years of imposing stricter criteria. 

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. 

Head of credit at Standard Bank, Tumelo Ramugondo, said the bank has also noticed a change in how consumers are using 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 the rise in credit card usage may be a result of consumers looking to earn more reward points. Standard Bank, for example, enables clients to earn more UCount points when using a credit card compared to debit. 

Ramugondo adds that while a credit card was traditionally a useful borrowing option to finance big-ticket purchases, its role has evolved into an everyday payment tool. 

It has become especially useful for consumers who want to spread the cost of items purchased during big sales to take advantage of the flexibility offered by buy-now-pay-later options.

n an interview with Daily Investor, Standard Bank CEO Sim Tshabalala said the bank had never shut its taps, explaining that it had applied the same criteria to all clients across the past two years. 

What has happened is that consumers have come under increasing financial pressure and can no longer meet affordability criteria. 

While credit cards are booming, other forms of lending, such as home loans, are still experiencing sluggish growth. 

Reserve Bank data shows that lending to households, in particular, has slowed significantly as South Africans struggle to make their monthly repayments. 

“Persistently high inflation and high interest rates have contributed to a significant rise in consumer strain, with increases in early arrears, debt counselling inflows, and unsecured credit demand,” the Reserve Bank’s Prudential Authority said. 

Under these challenging conditions, various retail banking products, such as personal loans, revolving credit lines, and residential mortgages, experienced considerable stress.

The regulator’s annual report highlights that the performance of residential mortgages has been notably affected by the interest rate hikes starting in November 2021.

Defaults on residential mortgages surged by 36% year-on-year by the end of February.

The Reserve Bank’s data also shows that banks are more willing to extend credit to companies in the current climate. 

lending to corporates has remained more resilient than households and is set to increase as confidence grows following a positive election outcome. 

The resilience in this category likely reflected the growing demand for light commercial vehicles in line with growth in eCommerce and heavy commercial vehicles for road freight transportation due to prolonged logistical challenges experienced in rail freight. 

Companies looking to reduce their reliance on government services, particularly electricity and logistics, have driven demand for lending, and banks are willing to extend credit to these businesses. 

This is broadly in line with S&P Ratings, which said South African banks will cut back on lending throughout 2024 but are likely to increase their exposure to certain sectors. 

The rating agency said banks are likely to continue financing renewable energy projects and offering credit to businesses heavily involved in this sector.