SA’s consumers’ finances absolutely sick from Covid-19

The latest TransUnion Financial Hardship Survey in South Africa shows that 78% of South African consumers reported during the last week of August that the Covid-19 pandemic has had a negative impact on their household income.

Although 78% is considerably lower than the 84% measured at the end of May, it was largely the same as at the end of July, when 77% were still struggling. Only about 17% to 21%, depending on month of survey, have received some form of financial accommodation, such as a deferral, forbearance or, in most cases, a payment holiday.

In turn, this has caused an increase in outstanding balances while interest continued to accrue. This increase could also be ascribed to consumers borrowing more, as the report showed 17% of consumers used more available credit.

In addition, TransUnion’s Q2 2020 South Africa Industry Insights Report (IIR), shows that non-bank personal loans had a delinquency rate of 32.1%, home loans 7.8% and vehicle finance loans 7.4%.

“The use of payment holidays has contributed to a general increase in outstanding balances, while demand for new credit declined significantly,” Carmen Williams, director of research and consulting for TransUnion South Africa, says.

The increase in delinquencies for non-bank personal loans mirrors how the pandemic affected the vulnerable the most. These loans are usually aimed at higher-risk borrowers and a bigger increase in delinquencies is expected as financial hardship has a bigger impact proportionally on financially stretched consumers.

However, demand for consumer credit fell during the second quarter, with the YoY fall in enquiries for most major credit products falling by 62% for credit cards, 47% for bank personal loans and 39% for non-bank personal loans.

The only increase was for home loans, with an increase of 11%, mainly due to deeds offices that were closed for several months.

Williams says this reduction in demand is pronounced and likely to continue, especially in the short term.

“Our recent Financial Hardship Survey indicated that the number of consumers whose income was affected continues to be significant, which means that people have less confidence in being able to afford credit. They have also reported that they are cutting back or delaying spending to meet obligations and manage household budgets.”

In the Financial Hardship Survey, 40% of consumers who felt the financial impact of the pandemic said they were working reduced hours, and 17% lost their jobs as a result of the pandemic. Almost nine out of 10 (89%) remained concerned about their ability to pay bills and loans and one in three (33%) consumers expect to run into a financial shortfall within a month.

The proportion of impacted consumers who lost their jobs has dropped by 4% from 21% at the end of July, but 18% reported having started a new job or developed a new income-generating activity.

The report indicates that consumers continued to make changes in their household budgets to cope, with 59% of impacted consumers cutting back on discretionary spending, while 41% have cancelled subscriptions or memberships.

Consumers are also getting more concerned about future payments, with 25% of impacted consumers indicating they expect to be able to pay their obligations for longer than three months, up from 10% in April. The average monthly payment amount that respondents expect to be short when paying bills and loans is also decreasing, down 13% from R7,543 in June to R6,538 in the latest survey.

According to TransUnion’s research, retail/clothing accounts (39%) and personal loans (37%) are most at risk of not being paid, followed by rent and utilities (32%).

Consumers are also changing their behaviour, with 51% saying they will delay holiday plans. They are also dipping into their savings, with over 40% of affected consumers indicating that they are using their savings to pay bills. A total of 31% borrowed money from friends or family.

They are not unwilling to pay their debts, with 37% saying they will pay at least a partial amount of their bills, and 15% indicating they are paying debt faster and 13% reporting they saved more in their emergency fund or stokvel. More consumers are also getting back to making full payments.

Benay Sager, chief operating officer of Debt Busters, says consumers who approached the company during the second quarter were severely impacted by the national lockdown.

“As a result, we saw heavily escalated debt levels compared to previous years.”

However, they had fewer credit agreements compared to previous years, required 62% of their net income to service their debt every single month and had a debt to income ratio of 113% on average. They had negative real income growth, while unsecured debt was 18% higher than in 2016 levels.

Professor Jannie Rossouw, interim head of the Wits business School, said it was expected that consumers would face financial hardship due to people losing their jobs.

“In the months to come, consumers should therefore be very careful when considering spending, especially if it is done on credit. We must remember that there is also the risk of higher interest rates in the future, should the rate of inflation accelerate.”

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