South African household debt in South Africa rose in the fourth quarter of 2020, driven by lower interest rates, attractive offers by retailers and the usual seasonal rise in spending during the festive season, according to Nedbank.
In a research note published this week, the bank said that this ratio of debt to disposable income subsequently rose to 75.3% from 74.9% in the third quarter.
However, the ratio of debt service cost to disposable income decreased slightly to 7.7% – the lowest since the first quarter of 2006, from 7.8% in the third quarter, it said.
“In 2020 as a whole, growth in household debt slowed to 4% from 5.8% in the previous year.
“However, as a percentage of disposable income, it increased to 77.1% from 72.9% as household income declined, devastated by the Covid-19 pandemic and subsequent lockdown restrictions, resulting in profit losses and rising unemployment.”
The Reserve Bank cut interest rates by 300 basis points in 2020, which reduced household debt servicing cost to a historic low of 8.5% in 2020 from 9.4% in 2019.
Nedbank said that household net wealth rose further to 371.2% of disposable income in the fourth quarter from 364.4%, with asset growth outpacing liabilities.
“Assets were propped up by the strong rebound in equity prices and some improvement in house prices,” it said.
“However, net wealth deteriorated in calendar 2020 as the value of household assets decreased somewhat while that of liabilities increased slightly.”
Nedbank forecasts economic activity will fare better in 2021 as the gradual rollout of Covid-19 vaccines ease anxiety. However, household finances will probably remain under pressure, it said.
“Companies will still be hesitant to expand operations due to the financial damage caused by the lockdowns, excess capacity and structural constraints, particularly unreliable power supply.
“This will contain job creation and therefore limit income growth. Any resurgence in infection rates would probably result in stricter lockdown measures, potentially derailing the expected recovery,” it said.