SA's debt trap widens

2011-06-05 20:28

Johannesburg - Nearly half of the country’s credit-active population is drowning in debt even though interest rates are at their lowest in 29 years.

Grim figures released this week by the Credit Bureau Monitor of the National Credit Regulator (NCR) show that in last year’s fourth quarter, 47% of the 19 million credit-active consumers had impaired records.

The country’s debt-to-income ratio currently stands at 78.5%. This means that for every R100 each household earns, R78.50 goes towards servicing debt.

The figures look grim, especially since speculation is rife that the Reserve Bank could start raising interest rates later this year or early next year.

Hiking interest rates is set to erode the spending power of consumers, meaning that businesses are set for tough times ahead.

Darrell Beghin, a manager for credit information and research at the NCR, said the figures showed that consumers were still under pressure.

He said: “The fact that the number remains high even with the current low interest rate is evidence of the pressure consumers are experiencing in repaying their debt.

“However, it is important to note that the rate at which consumers fall into the arrears categories has slowed.”

Beghin said consumers would be placed under more pressure if rates were upped.

Higher interest rates would translate into higher instalments and consumers would be required to fork out more to service their debt.

Beghin advised consumers to cut expenditure on alcohol, tobacco, entertainment, club membership, subscriber TV and gambling.

Economist Lumkile Mondi said consumers would start getting into trouble with banks if the central bank raised interest rates by more than 200 basis points.

He said: “The Credit Bureau figures mean that more people will default on the debt should the Reserve Bank start raising interest rates.

“However, the banks would start repossessing many houses and cars if interest rates are increased by more than 200 basis points.”

Kay Geldenhuys, a property finance processing manager at bond originator ooba, said: “Though interest rates are at their lowest level in more than almost 30 years, a relatively high household debt-to-income ratio of 78.5% continues to place pressure on households.”

The number of consumers with impaired records increased to 8.6 million in last year’s fourth quarter from 8.5 million in the third quarter.

Geldenhuys said: “The high percentage of consumers with impaired records is reflective of the slower growth in the economy, job losses and inflationary pressures from the recent series of high electricity and fuel price increases, and stagnant consumer confidence.”

She said over an extended period in households where excessive debt-to-income ratios remained high, they became susceptible to impaired credit records.

Geldenhuys said the increase in impaired credit records is likely to have a knock-on effect in terms of credit extension in the short term.

She advised consumers to focus on paying off their debts and clearing their credit records.

“When applying for a bond, banks are going to scrutinise your credit rating. A bad credit rating or an adverse listing on your name can seriously hinder your ability to secure home loan finance,” said Geldenhuys.

Economist Tony Twine said: “Low interest rates would normally translate into easy access to credit because of the servicing costs being low.”

Twine said businesses were going to be hit hard by high interest rates as they would make it more expensive to do business.

- City Press
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  • bradleybrits - 2011-06-05 21:20

    How about government reduce income taxes to allow people more cash to pay their debt off more easily?

      Agent Koos - 2011-06-06 10:24

      The High level of Income tax is funding the Gravy train so there is no way they will reduce that ever!!!!!!!

      Iran999 - 2011-06-06 10:40

      Do not mess with Tender Money !!

      DeonL - 2011-06-06 11:40

      Most people will just spend more money if taxes are lowered. To get ahead in life you should spend less than you earn and put some money away every month. Less than 5% of all people that work, save enough for retirement.

      Jason - 2011-06-06 21:15

      LOL, they will spend the tax relax on other stuff they can't afford...I see what people earn and the cars they choose to drive, they first look at repayments, and get the best they can get.. then worry about insurance and other related expenses later..

      mario - 2011-06-07 11:13

      How bout stopping these multi nationals extending so much of credit to individuals that if anything were to go wrong they wont be able to pay it

  • Nam - 2011-06-05 21:28

    Too much money and low overall production.

  • clark - 2011-06-05 21:32

    - Yet the Anc believes they can justify charging road tolls on the over - burdened consumer households. It's all going to end up very Pear shaped.

  • D W - 2011-06-05 21:58

    No surprise, really. The banks have been outsourcing their clients' debts to collection agencies that typically charge interest rates of 25% plus fees of 10% on whatever amount clients pay every month plus "service charges". The Reserve Bank's low interest rate means nothing for indebted South Africans who are facing these blood-sucking collection agencies whilst trying honestly to pay back their loans.

      Jasper van der Westhuizen - 2011-06-07 11:26

      25% plus interest rates on debt collection? That would be illegal.

  • Mattewis - 2011-06-05 23:06

    Not a very difficult problem to solve: 1. Stricter control of credit, but with a moratorium placed on increasing interest rates. 2. Immediate cessation of BEE/AA in favour of performance-, rather than skin-colour driven economy. 3. Reclaim unproductive agricultural land and place it back into competent hands. 4. Get ESCOM & SPOORNET back into competent hands as well. 5. Properly guard border posts, and get illegal immigrants out once and for all. Pigs will probably fly before this marxist government does anything sensible!

      Trumpi - 2011-06-06 12:43

      I don't think he means "white hands". I'm pretty sure that there are black farmers with productive farms - they are the ones who get to keep what they have got.

  • Asad Patel - 2011-06-05 23:36


  • piet.strydom - 2011-06-06 01:19

    Is it a debt to income ratio, or a debt payment to income ratio. I can really not believe that 78% of everyting earned by individuals goes towards debt repayments....

      Cabanga - 2011-06-07 05:41

      It is a debt to income ratio. The author of this article clearly does not understand what it means. For every R100 of income, people on average have R78 of debt. Sensationalist and uninformed reporting (and commentary).

  • hermannb - 2011-06-06 02:29

    Stop buying expensive branded products and go back to basics. Why pay R2000 for a pair of shoes with name X when you can buy shoes for R400. After all, they only cover your feet and you dont have to make a statement to impress anybody.The same goes for clothing and cars.You think when you earn more, you SHOULD go for expensive brands to prove something.I have arrived!! Bulldust !! Why spend your money on expensive eat outs instead of eating/cooking at home ?So a treat once in a while is ok, but it does not look to be the norm these days.We are our own worse enemy. We spend like hell,then we want the Government to do something about it. Come right.....get back to basics...spend wisely. If you cannot afford your bond.Look for a house which you can afford.If you cannot pay your car,go for something cheaper. REMEMBER, THESE PEOPLE AND FRIENDS THAT YOU WANT TO IMPRESS,WILL NOT HELP YOU WITH THE PAYMENTS TO STAY IMPRESSED.DONT fall for all these creditcards that offers you 6 or months to pay for clothes etc..they are a debt trap.Pay with that 4 letter word CASH.SAVE to do it.But alas...then comes electricity,property rates,taxes and the likes.....THAT you can only change by voting for the party you want in Government.A government for the people and not a Government that is there to enrich the chosen ones at your expense.THAT IS UP TO YOU.

      allnet - 2011-06-06 10:55

      What do you think who buys those use tax money! They don't care its not their money!!!

      Noah - 2011-06-07 11:11

      I were talking sence until u mention the change of for spending money wisely you are givin gud advice.keep it up

  • Saamprater - 2011-06-06 06:09

    This is a direct result of government policy. That policy that forced the banks to give credit to people who were not educated to service debt or to people who have too much credit to start with, couple that with greed and the mentality of " I want it now, because the world owes me" and add a bit of arrogance to the mixture and you have a nation that is so badly in debt that it must be some kind of world record. Why people still vote for the very party that causes them to be slaves is beyond me.

      Thinus - 2011-09-13 16:51

      Saamprater, Unfortunately I cannot agree with you. This is not a specific government like SA issue, no its tentacles goes far beyond that. Why don't you just visit and watch somke youtubes on, where you will find some very interesting information. I say the reason is the pickpocket effect of capitalism. Consider the facts unemotionally, and I bet you will come to the same conclusion. All the best.

  • Theodon - 2011-06-06 08:06

    Greed people. That is why we are in the place we are in. Learn to live off of what you have! It took your parents 30 years to own everthing they have and you want it before you het 30!!!

      anita ngubane - 2011-06-06 15:48

      I believe it is all in the approach, coupled with budgeting as well.In accounting we believe you earn before you spend, while in marketing, they believe in spending before they earn( if u know what I mean).As an upcoming accountant I believe that if the majority were to apply the accounting principle, in whatever little they earn after the Tax Burden, we would less likely be indebted as we are at the moment.LETS LEARN TO SPEND WHAT WE HAVE, not what we do not have.

  • Dr Maximus - 2011-06-06 08:52

    This is a world wide trend. The average person wants more than he can afford. Education on avoiding debt should be of prime consideration. If you continue to owe the banks money you will never get ahead in life.

  • DoctorWolff - 2011-06-06 08:56

    Governmental incompetence makes saving impossible since we are constantly paying private companies for services that the government is responsible for and we are actually paying for yet never receive. We are effectively being double taxed. There should be some protection for tax-payers under the new Consumer Protection Act. If government just did their job there would be lots of money that can be saved, but they are more into thinking of other ways of milking tax-payers with idiotic ideas like the toll-roads. What's happening wiht all the taxes on fuel and the tax we pay?

  • logical - 2011-06-06 08:59

    The problem with the banks is that they only award finance to people with extensive credit histories. People that are responsible wih their money, don't have heaps of accounts and choose not to have credit cards are immediately sidelined and refused finance because the bank is unable to "tell" if they are able to pay off credit. I am lucky enough to have a company vehicle and phone thats paid for, so there is no need for me to go out and drown myself with credit accounts and credit cards. Why put my financial status into credit when i can live comfortably with my current cash flow. It only leads to unnecessary debt that you need to repay every month. I understand that this is not the case for everybody and some people don't have credit history and cant afford payments. I thought the new procedures were supposed to enforce individual scrutiny and relieve the problem of high debt levels. How is a person who has a good credit history in a better position than someone who has no need for credit. A person may have a good credit history and maintains their payments but are then awarded a ridiculous bond amount which puts them behind every month leading to debt which is hard to get out of. All because the bank awarded them the an outrageous bond that they can afford on their salary, before all those wonderful accounts and credit card payments came off of their account. All because they had a lovely credit history before the banks got involved. It's simple money in and money out

  • tsoetsang - 2011-06-06 09:40


  • R Daniels - 2011-06-06 09:54

    Numbskulls............the factors really hindering an economic recovery in SA is the price of fuel, huge per annum electricity hike as well as rates and WATER (which was hiked when the dams were low in WP but never discarded despite there never being a similar situation since and despite the fact that none of the extra income generated is being used to build more dams etc). The FACT is no person living on a gov pension can afford property taxes, water & electricity on a state pension never mind food and healthcare. The government and industry greed only increases the number of people suffering every month. And they wonder why so many people HAVE to live in shacks? We need a social revolution like yesterday

  • ebudae - 2011-06-06 10:52

    I think most people would be surprised to learn that we are all actually getting poorer. this debt problem is not just a South African problem. The fact is that, while taking into account inflation, people spend no more today than they did 30 years ago on food, clothes, travel and entertainment. However, the biggest expenses that any family faces have more than doubled since 30 years ago. House prices have skyrocketed, so mortgage repayments are much higher, a lot of families now have two cars where one used to suffice, medical aid is another large expense and child care because there are now many more two income families than ever before. What is also surprising is that for the last 30 years the average income of men has barely moved. Remember this is all taking into account inflation.

  • Chris - 2011-06-06 11:00

    The NCA does not favour the poor in our country. It Has managed to close many in-house credit operation and caused many job losses. The fact is that the consumer, poorest of the poor, ends up paying a lot more for their household goods than in the past.

  • guishi - 2011-06-06 11:16

    Blame it on apartheid? Go on .... you know you want to!

      Jamesons - 2011-06-07 02:10

      it is apartheid's fault!!!! did they not tell you?

  • Ockert - 2011-06-06 11:57

    And the other R21.50 goes to taxes ?, does not sound right, taxes are definitely more than this !.

  • Fluke - 2011-06-06 12:04

    And still credit offers, addressed to my gardener, arrive in my post box...

  • Badballie - 2011-06-06 12:12

    of course everyone omits to acknowledge that the cash strapped population is the same one supporting 95% of the country that doesn't pay any tax, as well as supplying the millions being stolen by government every wonder we are cash strapped.

  • carjan - 2011-06-06 12:30

    Goverment is to stupid to curb inflation in any other way than by increasing int. rates

  • CONCERNED - 2011-06-06 13:01

    Well and with the 3 appeals court judgements regarding section 129 letters forming part of legal action, section 86(10) terminations and the mora 15.5% rule to be instated by all magistrate court debt review applications I don't see a way out for consumers.... the creditors are favoured and allready cash strapped consumers are penalised more.

      Andrew van Wijk - 2011-06-06 14:11

      Too true, companies have lost focus they have all the details of their customers yet they will not actually contact the clients. Instead they would list you and when you query about the fact that they did not contact you they say it's out of their hands, though while you are buying they readily extend the credit lines. Bunch of lazy idiots.

  • pugwash - 2011-06-06 13:42

    I dont think we need a rocket scientist to work this one out!!!

  • The The - 2011-06-06 14:19

    The fact that the political majority requires affirmative action to protect them against a 9% minority group is testament to a complete failure on their part to build their own wealth-making structures, such that their only solution is to take it from others.

  • Lindetjie - 2011-06-06 14:52

    The ANC needs to stop milking the middle class - we CAN only pay so much!!

  • Louis - 2011-06-06 16:12

    What about this RCS with a interest rate of 33% and the banks making their own interest of 22% why dont they keep to the 9%, it is instetions like this and theives like this that is killing our people with debt. What about this rule that reads that if you are blacklisted you cant find a job the goventment is enforcing unemployment with their rules. You want to find a job to get you out of debt.

  • Tunkisi - 2011-06-06 18:52

    Most people i know are in debt because of losing their jobs. NCA has been in play for a while, you don't have to be Eistein to figure this out. The unemployement rate went up by 1%,,,,,Duh! How do you maintain your credit if you are unemployed.

  • Jannie Swem - 2011-06-07 08:31

    Reduce tax, and then we can solve our credit issues. the credit situation in this country is sickening, nearly every retailer has credit facilities? why? cause the middle class can't afford to buy anything cash anymore...rcs,edcon,Abil, JD's of this world... and even capitecs credit products...this country is giong to be in a credit crisis very soon.

  • Jannie Swem - 2011-06-07 08:37

    This country is in a credit crisis, every shop has retail facilities, we are getting poorer and poorer every day, banks give you a credit card over the phone, salaried individuals cant afford to buy anything subtantial with cash anymore... cut takes, electricity and fuel cost, tighten the NCA and have lower interest rate caps after prime..

  • Robbex - 2011-11-03 11:44

    The way out is to buy only what you can afford to pay for. Sure we are poorer, and it is going to get worse...but buying on credit to maintain a consumer driven aquisitive society is nuts....Keep it up and you get what you deserve.

  • Clifford - 2011-11-03 12:22

    We all simply have got to be pro-active in knowing where we stand in terms of our debt usage and never let it get away from us. As a start, get your credit record, it’ll give you an idea of what the credit bureaus know about your and how they rate your current credit worthiness.

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