Households owe banks R680bn

Gabriel Davel, CEO of the National Credit Regulator, notes that there are indications of important changes in the credit market behaviour, resulting in increased provision of finance by mainstream credit providers to lower income groups.

Davel says this may contribute to a lowering of the cost of finance with relatively more expensive forms of finance such as micro-lending being replaced by credit card facilities. But he cautions that credit card instruments are more complex and that undisciplined use may lead to over-indebtedness.

"Monitoring the levels of indebtedness will be an important function of the NCR and the regulator will conduct ongoing research into indebtedness and related matters," says Davel.

These views echo those of South African Reserve Bank Governor Tito Mboweni, who was speaking at a meeting of the National Consumer Forum last Thursday.

Paying credit with credit

Mboweni emphasised that in accepting credit, consumers should understand their rights and should not fall prey to the aggressive marketing of credit.

"Some of our banks have been offering people two credit cards where they can use one card and once that is exhausted they can use the other to pay off the other one. Now I don't know what madness this is to use credit to pay credit. They are just recycling debt as the other card is soon in deficit," he stressed.

"Very soon the 4x4 is back at the garage, the house is up for sale and the children are out of private school and everyone goes back to the township. They use taxis and not the 4x4," explained Mboweni.

He said, however, that the National Credit Act would "hopefully provide further protection for consumers".

"There are two sides to every story and two sides to every transaction. Consumers must also take some responsibility - you cannot just blame the banks - we as consumers should take on the primary responsibility and act as adults," he stressed.

Banks more accommodating

Monday's NCR report highlighted that growth in credit extended to households since January 2004 had exceeded growth in household consumption, nominal GDP growth and growth in formal employment.

The researchers pointed out that there have been significant structural changes in the consumer credit market over recent years.

"This includes banks becoming more accommodating with respect to the low-income market. The lowering by banks of income thresholds in the credit card segment has improved access to finance for lower income individuals. This has given low-income persons access to a comparatively cheaper source of credit than, for example, micro loans," the said.

Mortgages currently account for 65% of credit to households. This category grew by R207bn, or 87%, over the last two years, the research showed.

Credit cards, meanwhile, account for 5.5% of credit to households and have grown by 138%, or R20bn, since 2004.

Various banks, retailers and micro-lenders were interviewed as part of the research project.