Consumers under pressure as debt applications hit record high
The 18.1-million requests in the third quarter was 3% more than in the preceding one, National Credit Regulator data shows
16 January 2025 - 05:00
byJana Marx
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The level of arrears on consumer loans reached a new high in the third quarter of 2024. Picture: REUTERS/SIPHIWE SIBEKO
Consumers applying for loans and those in arrears have reached a high, according to data for the third quarter of 2024 released by the National Credit Regulator.
The data, released on Tuesday, showed that there were 18.1-million applications for credit by consumers in the quarter. It was 3% more than the second quarter and up by nearly half since the end of 2021 when the economy was emerging from the Covid-19 pandemic.
“This, to me, suggests consumers are under pressure,” Absa bank economist Peter Worthington said.
The level of arrears on consumer loans also reached a new high in the third quarter of 2024. In particular, mortgage arrears rose to 6.9% of outstanding loans, while payments that are between one and three months overdue also remain elevated.
“This stands in contrast to other types of secured lending (mainly vehicle finance), where arrears have declined to just 4.8% of the outstanding book,” Worthington said.
He suggested that the difficulty banks face in repossessing homes compared to cars could explain why consumers are letting mortgage arrears build up while striving to keep car loans current.
“But of course, instalments on car loans are typically much smaller than on house loans.
“So, it’s possible that consumers who are under pressure are simply choosing to remain current on the one loan they can fully service.”
Credit card debt
Data from the Reserve Bank recently showed household credit card debt growth remains substantially higher than the overall growth in bank lending to households.
“Since credit card debt is particularly expensive, this may reflect a degree of ongoing distress borrowing by consumers as they wait for their incomes to catch up to the big cost of living increases over the past few years,” said Worthington.
“People’s jobs are more secure and the economy is slowly stabilising,” he said. “As a result, people became more inclined to borrow money. More so than during Covid, when there was a great deal of uncertainty,” Worthington said in reaction to the regulator’s data.
“People feel more hopeful at the moment. They’re maybe less worried about losing their jobs. Consumer confidence metrics have improved. As a result, consumers become more inclined to take loans — more than during Covid, when there was a lot of uncertainty.”
He said one possible inference was that the high volume of credit applications could be coming from indebted consumers seeking to take on new debt to repay old debt that is falling due.
“Meanwhile, perhaps surprisingly, the rejection rate on these applications continued its decline to 67.6% from 68.0% in the previous quarter.”
He attributed the high figures to psychological factors.
He said people were more likely to borrow when they feel confident about being able to repay.
“The fact of the matter is that when times are tough and the future is uncertain you probably won’t borrow if you don’t have to. You’ll probably only seek to borrow if you are under pressure to pay key expenses like school fees or your monthly vehicle loan.”
He said consumer confidence has improved somewhat, as SA’s economic prospects have lifted with the formation of the government of national unity, the end of load-shedding, some employment and wage growth, and falling inflation.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Consumers under pressure as debt applications hit record high
The 18.1-million requests in the third quarter was 3% more than in the preceding one, National Credit Regulator data shows
Consumers applying for loans and those in arrears have reached a high, according to data for the third quarter of 2024 released by the National Credit Regulator.
The data, released on Tuesday, showed that there were 18.1-million applications for credit by consumers in the quarter. It was 3% more than the second quarter and up by nearly half since the end of 2021 when the economy was emerging from the Covid-19 pandemic.
“This, to me, suggests consumers are under pressure,” Absa bank economist Peter Worthington said.
The level of arrears on consumer loans also reached a new high in the third quarter of 2024. In particular, mortgage arrears rose to 6.9% of outstanding loans, while payments that are between one and three months overdue also remain elevated.
“This stands in contrast to other types of secured lending (mainly vehicle finance), where arrears have declined to just 4.8% of the outstanding book,” Worthington said.
He suggested that the difficulty banks face in repossessing homes compared to cars could explain why consumers are letting mortgage arrears build up while striving to keep car loans current.
“But of course, instalments on car loans are typically much smaller than on house loans.
“So, it’s possible that consumers who are under pressure are simply choosing to remain current on the one loan they can fully service.”
Credit card debt
Data from the Reserve Bank recently showed household credit card debt growth remains substantially higher than the overall growth in bank lending to households.
“Since credit card debt is particularly expensive, this may reflect a degree of ongoing distress borrowing by consumers as they wait for their incomes to catch up to the big cost of living increases over the past few years,” said Worthington.
“People’s jobs are more secure and the economy is slowly stabilising,” he said. “As a result, people became more inclined to borrow money. More so than during Covid, when there was a great deal of uncertainty,” Worthington said in reaction to the regulator’s data.
“People feel more hopeful at the moment. They’re maybe less worried about losing their jobs. Consumer confidence metrics have improved. As a result, consumers become more inclined to take loans — more than during Covid, when there was a lot of uncertainty.”
He said one possible inference was that the high volume of credit applications could be coming from indebted consumers seeking to take on new debt to repay old debt that is falling due.
“Meanwhile, perhaps surprisingly, the rejection rate on these applications continued its decline to 67.6% from 68.0% in the previous quarter.”
He attributed the high figures to psychological factors.
He said people were more likely to borrow when they feel confident about being able to repay.
“The fact of the matter is that when times are tough and the future is uncertain you probably won’t borrow if you don’t have to. You’ll probably only seek to borrow if you are under pressure to pay key expenses like school fees or your monthly vehicle loan.”
He said consumer confidence has improved somewhat, as SA’s economic prospects have lifted with the formation of the government of national unity, the end of load-shedding, some employment and wage growth, and falling inflation.
marxj@businesslive.co.za
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