Cash-strapped consumers are turning to credit to finance their purchases and new loan default rates paint a worrying picture when it comes to stable financial matters.
This was revealed by Eighty20, a consumer strategy, analytics and research company this week.
Fourth-quarter retail figures suggest a slight sales recovery, but the worrying trend continues as consumers persistantly rely on credit to finance their daily needs .
Eighty20 in association with Xpert Decision Systems released the fourth-quarter retail figure through Credit Stress Report 2022 quarter 4.
The report highlights that while retail figures suggest some breather in the storm that has been battering South Africa, default rates tell a completely different story.
The group said it was looking at the macro trends, and the picture that makes up 78% of all credit active South Africans and 92% of all loan value was concerning.
“These segments are students and scholars, the mass credit market, middle class workers, and the heavy hitters.
There were more than 800 000 new entrants into the credit market this quarter, the highest since Covid-19, but it has come with a surging number of loans, notably credit card, vehicle and asset finance (VAF) and home loans, that are newly in default,” said Eighty20.
Based on the report, an overall number of credit defaulters has gone down by 2% while the total overdue balances went down by 11% from quarter four 2021.
“This is largely driven by significant write-offs of old loans, particularly VAF over the last year. These new entrants took out R9.3-billion in new loan value, the highest in more than two years, and up nearly 10% on last year.
“There has also been a significant surge in credit card balances with total loan balances up R25-billion. This brings the total credit active population to 18.7 million with total loans balances of R2.3-trillion.
“Despite this healthy growth, it is the rate of new defaults (RND), the proportion of current loan balances that went into default during the quarter, that is particularly worrying – sitting at 2.2%, up by nearly 16% compared with last year.
“This sharp increase in the RND is driven primarily by credit card, home loans and VAF loans with increases of 20%, 19% and 18% respectively when compared to -0.3%, 10% and 5% in quarter three”.
The RND is an early warning indicator of the state of credit stress.
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