DURBAN - WHILE Experian South Africa found that the rate of first-time consumer credit defaults improved in quarter four (Q4) of last year, consumer debt has increased to R1.81 trillion.
Experian’s Consumer Default Index (CDI) for the last quarter showed an improvement, down from 4.68 in September 2020 to 4.07 in December 2020.
The index tracks the marginal default rate as it measures the sum of first-time (accounts that have never) defaulted balances as a percentage of the total sum of balances outstanding.
“The rate that people defaulted on their loans fell at the end of last year, primarily due to a combination of the impact of payment holidays and lenders tightening their criteria.”
The reason for the decrease of firsttime defaulters according to Experian was driven by the availability of payment holidays from lenders.
“A significant reduction in the volume of new accounts opened since the onset of the Covid-19 pandemic has also had an impact, with most lenders tightening their lending criteria and new credit exposure.”
Chief decision analytics officer at Experian Africa Jaco van Jaarsveldt said despite some positive data, there had not been an overall improvement in the financial performance of the average South African consumer.
Levels of distress were expected to increase across all segments of the market as the effects of Covid-19 and a continuously deteriorating economy weigh on performance, he said.
“People should continue to manage their finances carefully to ensure that they can endure the uncertainty ahead, while lenders will need to use insights from data to make the best decisions on their customers,” said Van Jaarsveldt.
Experian said vehicle loans deteriorated, from 3.26 in December 2019 to 4.42 on the index in December 2020, as well as personal loans which deteriorated from 9.04 to 9.81.
Debt Rescue chief executive Neil Roets agreed that the improvement seen was due to payment holidays granted to consumers who do not have a history of payment defaults.
Roets said if consumers were unable to pay after the payment holiday periods lapsed, there would be an increase in the payment defaults.
“The reality is that it is expected that there are still consumers experiencing financial distress, with many not having recovered fully, if at all, and this could likely lead to an increase in defaults in the future,” said Roets.
It was evident from an increase in defaults on personal loans, which some consumers use to cover some of their living expenses, that consumers were still facing financial distress, he said.
“It is now more than ever critical for consumers to budget and to understand their financial circumstances,” he said.
A good place to start, according to Roets, was by looking at a few months’ bank statements to see where cuts could be made, such as reducing expenditure or stopping services that are no longer required.
“If a consumer is unable to cover the minimum debt instalments after budget changes have been made, it is important to immediately seek help from a professional debt counsellor,” said Roets.
Chief executive of the National Debt Advisors (NDA) Sebastien Alexanderson said the debt pandemic brought about by the Covid-19 pandemic needed to be addressed.
He said the NDA’s recent analyses of their customer book had demonstrated the far-reaching effect that Covid-19 has had on the finances of South Africans.
The analyses, between March and December 2020, shows the impact the pandemic has had on the finances of South Africans.
“Between March and December 2020 the analyses done by our National Debt Advisors Research Department showed that Covid 19, the lockdown and subsequent interruption of income negatively impacted the finances of 80% of South African households,” says Alexanderson.
He said about 10% of their clients missed payments or made short payments on home loans and vehicles.
He said unsecured debt had the highest default rates.
Up to 40% skipped retail store payments and nearly 60% skipped personal loan payments.
Fewer people tend to skip retail store payments because they still need to keep their accounts going, he said.
“Many people have resorted to buying necessities like food or school clothes on their credit cards or store accounts,” said Alexanderson.
He added that South Africans should not feel ashamed for defaulting on debt.
“Consumers should ideally be looking at options like debt review (as per the National Credit Act) the moment they are unable to service their regular monthly debt repayments and afford their living expenses,” said Alexanderson.
THE MERCURY