Staggering rate of credit application rejections and defaults

The latest data from the National Credit Regulator shows a ‘staggering rate’ for credit application rejections and defaults.

The rejection rate for credit applications in the second quarter of the year was a shocking 69.17%, while the number of credit-active consumers with impaired records increased by 37.05%.

These shocking figures were part of the Consumer Credit Market Report issued by the National Credit Regulator (NCR) today.

The report shows that the number of credit applications increased from 15.02 million to 15.12 million, an increase of 0.65%. The NCR also released the Credit Bureau Monitor.

The number of consumers with impaired records increased by 202 759 to 10.02 million, while 24.01% of the consumers with impaired credit records were three months or more in arrears, 10.24% had adverse listings, and 2.81% had judgments and administration orders issued against them.

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“This paints a grim picture of the financial predicament of citizens from all income groups, who are turning to credit as a solution to their monetary woes,” Neil Roets, CEO of Debt Rescue, says.

“Thousands of consumers are turning to credit to make ends meet and it is deeply concerning that we continue to see a marked increase in people defaulting on their debt, which has prompted some of the major banks to cut back on lending,” he says.

The total value of new credit granted increased by 0.15% compared to the previous quarter, from R141.78 billion to R141.99 billion. Credit agreements increased by 6.66% from 3.79 million to 4.04 million.

Most significant credit trends in second quarter

The most significant trends in terms of credit granted were:

• The value of new mortgages granted increased by R2.75 billion (6.09%) compared to the first quarter and decreased by R9.69 billion (16.85%) compared to a year ago.
• Secured credit, dominated by vehicle finance, decreased by R480.03billion (1.06%) compared to the first quarter and by R153.55 million (0.34%) compared to a year ago.
• Credit facilities decreased by R1.14 billion (4.80%) compared to the first quarter and by R1.66 billion (6.85%) compared to a year ago.
• Unsecured credit decreased by R354.87 million (1.53%) compared to the first quarter and by R4.08 billion (15.14%) compared to a year ago.
• Short-term credit increased by R235.09 million (11.14%) compared to the first quarter and by R156.06 million (7.13%) compared to a year ago.

According to the NCR the total outstanding consumer credit balances (gross debtor’s book) at the end of June was R2.31 trillion, representing an increase of 0.74% compared to the first quarter and by 5.81% compared to a year ago.

The trends for outstanding balances for the quarter were:

• The mortgage debtors book increased by R8.62 billion (0.72%) compared to the first quarter and by R64.58 billion (5.65%) compared to a year ago.
• The secured credit debtors book increased by R3.02 billion (0.61%) compared to the first quarter and by R22.03 billion (4.59%) compared to a year ago.
• The credit facilities debtors book increased by R5.40 billion (1.73%) compared to the first quarter and by R30.97 billion (10.81%) compared to a year ago.
• The unsecured credit debtors book decreased by R910.18 million (0.41%) compared to the first quarter and increased by R5.26 billion (2.43%) compared to a year ago.
• The short-term credit debtors book increased by R106.08 million (5.07%) compared to the first quarter and by R339.78 million (18.27%) compared to a year ago.

Credit bureaus held records for 27.05 million credit-active consumers, which was a decrease of 0.05% compared to the 27.07 million in the previous quarter. Consumers classified in good standing decreased by 215 482 to 17.03 million, 62.95% of the total number of credit-active consumers.

The number of credit-active accounts decreased from 90.44 million to 90.21 million, while the number of impaired accounts increased from 19.13 million (21.15%) to 19.29 million (21.38%), an increase of 158 725 compared to the previous quarter and 26 685 compared to a year ago.

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Consumers under severe pressure – credit applications

Ngoako Mabeba, statistics and research manager at the NCR, says the interest rate cycle has been on an upward swing, placing consumers’ payment obligations under severe financial pressure due to increased debt repayments.

“The NCR urges consumers to plan and monitor their spending by drawing up a monthly budget and making shopping lists to manage their expenses. Consumers battling with debt repayments are also encouraged to contact their credit providers for assistance with payment re-arrangements. Consumers must not avoid credit providers when in distress.”

Mabeba says in the worst-case scenario, consumers are urged to contact their nearest registered debt counsellors to seek help, as debt counselling is intended to assist over-indebted consumers.

Over-indebtedness is when the consumer‘s income is insufficient to cover all financial obligations and living expenses.