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The most common metric used by monetary policymakers like the South African Reserve Bank to assess the indebtedness of South African consumers is the household debt-to-gross income ratio, which stood at 71.9% through 2018.
This figure remained unchanged from a year before, some way off an all-time high of 86.4% in 2008, before the global financial meltdown.
It is above the long-term average since 1969, which is 57.9%.
By comparison with especially developed countries, South Africa’s debt-to-gross income ratio is relatively low, with consumers in the Netherlands wielding an astonishing 209% of debt-to-gross income.
So just how indebted are South African consumers and is this worth worrying about?
The old aphorism that there are lies, damned lies and statistics is probably worth repeating here because the cost of living – rising fast as the economy struggles to absorb Eskom’s balance sheet woes – is not reflected in the number above, and neither is sluggish wage growth in a stuttering economy.
The makeup of this debt is also not reflected, which means a rise in unsecured lending at higher interest rates, which can pressurise consumers’ cash flow, is also not reflected.
Another aspect to consider is that debt metrics have typically only measured bank-originated debt, which means both formal sector credit from non-bank lenders and the informal lending sector are not fully taken into account when compiling these figures.
The gap in measurement is narrowing for lenders who access credit bureau data to make lending decisions.
Although, according to Experian South Africa’s chief data officer, David Coleman, most of the data credit bureaus like Experian receive comes from the South African Consumer Risk and Reporting Association.
“That association consists of banks, telcos, insurers, retailers and financial services companies, so we have a wide network of providers who send us this information. For two years we’ve been working to get new credit providers onto the database in a standardised format, once they’re registered with the National Credit Regulator.”
According to Coleman, the latest quarterly consumer default index shows 14.3m South African consumers who hold credit cards, personal loans, vehicle loans and home loans hold R1.56tr in outstanding debt as of December 2018.
The data from this consumer default index shows that there is pressure building in the private sector credit market, with the number of consumers who had previously never defaulted on debt repayments increasing from 3.1% to 3.4%.
Default levels in total now sit above 44%.The problem is most likely the mix of debt.
While consumer confidence and major purchase statistics remain muted, fewer South Africans are deciding to take out secured debt like home loans and more people are taking out loans of various types to maintain lifestyles.
Coleman believes this type of debt growth is outstripping wage growth so that certain segments of the credit-active market are coming under significant pressure.
This is a shortened version of our cover story that originally appeared in the 23 May edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
