Cape Town - The National Credit Regulator (NCR) is encouraging consumers to exercise caution and restraint when spending during the lockdown.
The rapid escalation of the Covid-19 pandemic has seen many consumers resorting to panic buying of essential items as the fear of the coronavirus spreads.
Chief executive of the NCR, Nomsa Motshegare, said: “Consumers are urged to make responsible financial decisions. Buying under panic and anxiety has the potential for consumers to buy things they do not need and cannot afford.
“It is important for consumers to remember that credit comes at a cost and that the credit acquired has to be repaid,” said Motshegare.
The advice came as NCR released its data for Quarter 4 of 2019 last week, showing a less active credit market.
The value of arrears, defined as being loans more than three months overdue, rose to 6.2% of the value of the gross loan in quarter 4 from 6.1% in Quarter 3. Meanwhile, the number of arrears rose to 14.0m in Q4 from 12.9m in Q3.
FNB senior economist Siphamandla Mkhwanazi said: “We are likely to see more risk aversion from lenders, mainly due to heightened uncertainty around global and domestic growth, the impact of lockdown on current income, and the impact it has on asset prices - and consequently wealth levels.
“More worrying, however, is the expected second-round, and more permanent (but lagged), effects of the outbreak on demand via the income shock channel. This will most likely be felt in the aftermath of the lockdown period should struggling businesses decide to freeze salaries or close shop.
“Heightened uncertainty could also dissuade consumers from taking on more credit, in fear that they might not be able to honour the obligations in the near future,” he said.
Absa Economist Peter Worthington said: “We believe that the rejection rate will likely rise further in the first half of 2020 as banks’ risk aversion rises due to Covid-19. Moving forward, we expect to see a rise in credit demand as consumers resort to their credit facilities more as employment income drops in the face of Covid-19’s impact.”
@MwangiGithahu