Publications
Partners
Johannesburg - There has been a return to a year-on-year increase in the number of insolvencies, according to John Loos, household and property sector strategist at FNB.
Insolvencies data for January 2014 was released on Monday and shows a return to a year-on-year increase in the number of insolvencies, namely to the tune of 14%.
Loos said since late in 2009, the level of insolvencies has had two broad periods of year-on-year decline.
The first one took place from late in 2009 to early in 2011. Then, after a brief stalling in 2011, the second declining trend started in May 2012 and continued unabated until December 2013.
"The monthly number, however, can be volatile, so we prefer to use a 3-month moving average, which suggests that insolvencies had at least stabilised after a lengthy declining trend," said Loos.
"The return to an increase in insolvencies has long been anticipated, after previously having observed a diminishing rate of decline through most of 2012, as well as having witnessed slowing disposable income growth in line with a multi-year slowdown in economic growth."
He said last week’s release of the SA Reserve Bank's Quarterly Bulletin also suggested that the end of the declining trend, may be near.
Debt-service ratio
It showed the the cost of servicing the household sector debt burden expressed as a percentage of disposable income moved broadly sideways since early-2013, after a prior declining trend from 2009 to 2012.
"This lack of further decline in the debt-service ratio is the result of slowing disposable income growth in recent times," said Loos.
"This has meant that, despite a slowing household sector credit growth rate, very little progress has been made in reducing the household debt-to-disposable income ratio."
Going forward, he would expect some mild rise in the household sector debt-service ratio, and therefore in the level of insolvencies too.
"This is based on our expectation that interest rates will be raised moderately to where prime rate ends 2014 on 10% and 2015 on 11%," said Loos.
"However, the emphasis is on a 'moderate' increase in insolvencies, because the interest rate hiking cycle is expected to be more moderate than the last cycle’s 15.5% prime rate peak."
Insolvencies data for January 2014 was released on Monday and shows a return to a year-on-year increase in the number of insolvencies, namely to the tune of 14%.
Loos said since late in 2009, the level of insolvencies has had two broad periods of year-on-year decline.
The first one took place from late in 2009 to early in 2011. Then, after a brief stalling in 2011, the second declining trend started in May 2012 and continued unabated until December 2013.
"The monthly number, however, can be volatile, so we prefer to use a 3-month moving average, which suggests that insolvencies had at least stabilised after a lengthy declining trend," said Loos.
"The return to an increase in insolvencies has long been anticipated, after previously having observed a diminishing rate of decline through most of 2012, as well as having witnessed slowing disposable income growth in line with a multi-year slowdown in economic growth."
He said last week’s release of the SA Reserve Bank's Quarterly Bulletin also suggested that the end of the declining trend, may be near.
Debt-service ratio
It showed the the cost of servicing the household sector debt burden expressed as a percentage of disposable income moved broadly sideways since early-2013, after a prior declining trend from 2009 to 2012.
"This lack of further decline in the debt-service ratio is the result of slowing disposable income growth in recent times," said Loos.
"This has meant that, despite a slowing household sector credit growth rate, very little progress has been made in reducing the household debt-to-disposable income ratio."
Going forward, he would expect some mild rise in the household sector debt-service ratio, and therefore in the level of insolvencies too.
"This is based on our expectation that interest rates will be raised moderately to where prime rate ends 2014 on 10% and 2015 on 11%," said Loos.
"However, the emphasis is on a 'moderate' increase in insolvencies, because the interest rate hiking cycle is expected to be more moderate than the last cycle’s 15.5% prime rate peak."
