THE AVERAGE South African household was now better able to manage debt than before the Covid-19 pandemic began, a trend likely to continue into next year, the maiden results of the Altron Fintech Household Financial Resilience Index (Afhri) showed.
Optimum Investment Group economic adviser Dr Roelof Botha said: “It is fairly apparent that a sharp downturn occurred during the second quarter of 2020, when the worst of the Covid-19 lockdown regulations were in place. Due to a remarkably swift recovery of most key economic sectors since the third quarter of 2020, the Afhri trend line has returned to a positive growth trajectory.
“A V-shaped recovery has been evident in a number of other key economic indicators, especially gross domestic product (GDP), retail trade sales and the SA Reserve Bank’s composite leading business cycle indicator. The latter indicator reached an all-time record high during the first quarter of the year, while the GDP recorded in the fourth quarter of 2020 matched the figure of a year earlier (in real terms),” said Botha.
He said the long-term upward trend in the index was likely to continue this year and next year. The index also showed that there was a decline in the household debt-to-income ratio.
The quarterly index launched this week is aimed at gauging the level of financial resilience among households, as well as their ability to service loans. It provides insight into the financial state of households by assessing the state of micro-lending from the perspective of the ability of borrowers to repay loans. Altron Fintech, a division of JSE-listed Altron, created the index in partnership with Botha.
According to the index, total salaries and wages had recovered swiftly from the negative effects of the lockdown, a trend that Botha said was likely to continue into the second quarter of this year. In contrast to a decline in private sector employment, jobs in the public sector had continued to increase, which had also exerted a positive impact on the Afhri.
Employment and labour remuneration were of overriding importance in assessing the financial disposition of households, and these indicators comprise almost half of the total weighting of the Afhri. Remuneration per worker also returned to growth mode since the fourth quarter of last year.
The Afhri showed there was a sound recovery of asset prices. This was in recognition that many households earned income from sources other than labour remuneration.
However, bucking the upward trend of the Afhri since the third quarter of last year was the value of credit impairments by the banking sector. The other indicators that exerted a negative effect on the index over the past year were credit extension to households, the ratio of salaries to GDP, household consumption expenditure, the ratio of household income to debt and private sector employment.
Altron fintech managing director Johan Gellatly said: “Despite the devastating impact of the pandemic and lockdown restrictions on the economy, the results of the Afhri demonstrate that household income has rebounded, and that borrowers are able to repay loans.”
BUSINESS REPORT