Over-indebted consumers, jittery lenders: what is happening to the credit market?

The credit industry is another part of the economy that was severely impacted by the pandemic, leading to changes in the credit market that would probably be permanent.

Repossessions were widely expected due to non-payment, but fortunately South African banks only repossess homes and cars as a last resort and have introduced special measures to assist who are unable to keep up their monthly instalments. Like the virus, the economic fallout for consumers also does not discriminate and people from all walks of life and income are affected.

“People are in a difficult position due Covid-19. Job losses and salary cuts are becoming commonplace, while unemployment is expected to rise. These are bound to lead to increasing consumer over-indebtedness,” says Lebogang Selibi, supervisor for education and communication at the NCR.

He says the NCR receives many consumer requests for help and directs them to credit providers and debt counsellors for assistance. The total value of new credit extended to South African consumers as at the end of September 2020 was R129.45 billion. This represents an increase of R74.76 billion (136.72%) quarter-on-quarter and a decrease of R13.56 billion (9.48%) year-on-year.

Credit bureaus

There is still consumer demand for credit, with demand remaining relatively constant, but credit supply has been muted due to the negative impact the Covid-19 pandemic on businesses, says Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa.

“While demand is very similar to pre-Covid-19 levels across most industries, supply from credit providers is lower due to the unknown longer-term impact on debtors’ performance due to employment and repayment pressures.”

According to Experian’s latest Consumer Default Index for the third quarter showed significant improvement from the previous quarter, down from 5.86% in June 2020 to 4.68% in September 2020 due to the gradual re-opening of the South African economy. In September 2019 the index reached 3,90%.

The easing of the lockdown has, according to the index, resulted in a dramatic improvement in the incidence and value of first-time non-payment among South African consumers. However, this is by no means a recovery.

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Non-payment of home loans showed a relative deterioration of 31%, vehicle loans by 32%, personal loans by 14% and retail loans by 55%. Credit cards were the only exception, showing a drastic improvement from 6.63% in September 2019 to 5.29% in September 2020.

“The credit market will remain under pressure as the medium to longer term impact of the pandemic is unknown and requires a more conservative approach to granting credit,” Van Jaarsveldt says.

Carmen Williams, research and consulting director at TransUnion South Africa, agrees that there is still consumer demand for credit, but she expects less new credit granting than last year. “Lenders are more cautious now.

“Non-payment is higher for credit, such as clothing accounts, but not so much for credit cards. The credit market is changing as the economy changes and it is quite volatile at the moment. There is a lot of uncertainty and the changes will continue.”

Repossessions

Standard Bank says it has supported 46,000 customers with payment holidays since the inception of the lockdown. The number of repossessions between the months of June to December 2020 is lower than the corresponding months in each of the preceding five years.

“During April and the first part of May 2020, repossessions were practically zero as legal processes were heavily impacted by level 4 and 5 lockdown restrictions, but this does not imply that there is no high levels of strain evident within our different customer segments. We have seen some pockets of customers being more heavily impacted than others,” a Standard Bank spokesperson says.

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People who are self-employed or own small businesses were quite heavily affected, while the salaried were somewhat less affected, unless they were retrenched or have their salaries reduced. Before the onset of Covid, 0,25% of Standard Bank’s loan book was in a repossession state, compared to 0.24% at present.

Nedbank tries to avoid repossessing cars bought through it car financing division, MFC, as far as possible, says Trevor Browse, managing executive for MFC. “We would rather work with the client on all possible means to keep them in their cars. If they just cannot afford to keep the car, we try to minimise their shortfall by getting the best price for their car with them through an assisted sale or voluntary surrender.”

Absa introduced Siyasizana, an extensive debt management programme that includes payment relief, debt restructuring, debt consolidation, assisted sales offerings and existing tools to mitigate the impact of the pandemic on the residential property market.

Siyasizana helped to reduce the number of car and home repossessions, says Geoffrey Lee, managing executive of home loans at Absa. “Repossession is always the last resort if all other remediation efforts fail. Our payment relief and other customer assistance programmes have helped shield us from the worst impact of the economic fallout. However, we expect to see an increased number of repossessions going forward if the economy does not recover quickly.”

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Lee says Absa has seen all income groups, especially self-employed individuals, affected adversely, especially people in non-essential sectors.

FNB also assists its clients and only after all efforts have been exhausted, considers legal steps, says Tiffany Singh, head of collections at FNB Home Finance. “During lockdown, our focus was to assist  through our various Cash flow relief programmes, which were well received.”

Options

According to the NCR, consumers have the following options if they are unable to pay their debts:

• Credit life insurance that consumers buy when they apply for credit or loan. It covers the outstanding debt in the event of unforeseen circumstances, such as death, retrenchment, unemployment, inability to earn an income and disability.
• Debt counselling or review. Debt counselling is a debt relief measure to assist over-indebted consumers struggling with debt through budget advice, negotiation with credit providers for reduced payments, extension of repayment term and restructuring of debt. Debt counselling also offers consumers protection against repossession or legal action by credit providers.
• Surrender of goods. The National Credit Act allows consumers to voluntarily surrender or return goods to credit providers when they can no longer afford the repayments or can foresee that they will not be able to maintain future payments.

Standard Bank offers EasySell to help  sell their vehicles with the help of dealer partners, to improve recovery values and protect their credit records.

Nedbank welcomes proactive discussions and engagements to try and give them options to get out of an arrears status when a client is struggling to make payments, but has intent to pay and recover. The bank also offers options for MFC car borrowers in financial difficulty.

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Absa offers a bank assisted sales programme, HelpUSell, to assist  with selling property or cars for the highest possible offer.

FNB has a range of special repayment arrangements to assist financially distressed  who proactively contact the bank as soon as they find themselves in financial distress. When FNB has to repossess a home, the bank prefers to place it on the FNB App and on www.MyRoof.co.za for exposure to private buyers to sell it faster and minimise potential losses.

There is also the option of QuickSell, a voluntary sale solution to assist financially distressed customers to sell their properties, with the guidance and support of property experts to enable a reduced shortfall.

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