Upon closing out 2021, it was clear that the personal financial position of the majority of South Africans was under strain. Record-high unemployment and rising inflation saw consumers being caught in economic cross-tides, battered by the winds of the fourth wave of COVID-19. A recent report by TransUnion forecasted that an increasing number of South Africans would turn to credit to carry them through the festive season and beyond. Samir Ghrib, Chief Risk Officer at RCS – a subsidiary of global bank BNP Paribas Group – the 4th largest bank in the world, says that the repo rate increase announced by the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) on 27 January, though in line with the hiking cycle instituted in November 2021, will add further pressure to South African consumers who are still struggling to emerge from the post-festive season pinch.
“The MPC announced a 25 basis points increase to the repo rate taking it to 4%. With another three hikes of 25 basis points expected this year, taking it to a total 1% hike in 2022, there is no reprieve in sight,” he warns. With this in mind, Ghrib says there has never been a better time for cash strapped South Africans to consolidate their approach to managing their finances and work towards developing healthier habits around credit. “Seeking advice from a financial adviser on how to work smart with your finances could be the best decision for financially constrained consumers, given the current climate. In fact, the 2021 Sanlam Benchmark Survey found that 87% of people surveyed said they want help when it comes to their personal finances.” Ghrib notes that although Januworry has come and gone, the post-festive season pinch is still very much in play for many South Africans. “Consumers need to be discerning about spending on credit, especially now that it is costing them more.” He adds that choosing a reputable financial services provider to assist with their credit needs is vital. Past reports have indicated that South African households spend three-quarters of their take-home pay on debt, with only a quarter remaining for their monthly expenses. In 2021, the debt to disposable income ratio for many South Africans reached a record high of 75% – a 5% increase on a longstanding average according to the SARB. Furthermore, the DebtBusters Q3 2021 Debt Index reveals that the average debt-to-net-income ratio is now an alarming 116% across all income bands or 145% for those taking home R20 000 or more.
“What we’ve seen over the course of a few years is that debt can become a vicious cycle. In our country in particular, many consumers fall prey to loan sharks and unaccredited institutions that offer exorbitant interest rates and unfair terms. At RCS, we encourage responsible credit habits, consistent re-payments and where possible, consumers should pay extra towards lowering their debt.” Current statistics put the number of employed persons at 14,3 million in the third quarter of 2021 – a sharp decline from the previous quarter. In a financial crisis, debt repayments are often the first financial commitment to be neglected. But the adverse effect of defaulting on debt extends to consumers’ credit scores, which has a long-term impact on their chance of securing credit in the future. With further interest rate hikes predicted in the near future, Ghrib advocates for a renewed focus on credit health for all South Africans as we work through the first few months of the year, which can be particularly financially challenging.
He offers the following advice on the subject: “Remember, debt repayments are negotiable, and creditors are often more compelled to be lenient in a particularly tough economic climate, so leverage the power of negotiation. The temptation to buy things on credit because it’s cheaper can be irresistible, but the responsible thing to do is to live within our means, resist impulse buys and work diligently towards financial freedom.”
