Credit bureau Compuscan has released its latest data, showing the correlation between the country’s stagnant economy and the resulting high levels of unemployment.
Citing the most recent Statistics South Africa data, the country’s unemployment rate hit its highest point in almost 14 years, reaching 27.7% as at the end of Q1 2017.
This equates to an 8.6% increase, year-on-year, in the number of unemployed individuals in the country taking the total up to 6,214,000 as at the end of the first quarter.
According to Compuscan, during the same time, there was a 13% year-on-year increase in the number of accounts that were three or more months in arrears and similarly a 13% year-on-year increase in the number of accounts that had been subject to an adverse enforcement.
Even more shocking, according to Compuscan, was the fact that there had been a 124% increase in mortgages with adverse enforcement codes – these include accounts handed over, assets repossessed, accounts written off or credit facilities withdrawn.
While it was recorded at a relatively low base – 18,000 of the 2.5 million open mortgages had adverse enforcements as at the end of Q1 2016, and 41,000 of the 2.6 million open mortgages had adverse enforcements as at the end of Q1 2017 – this trend is nevertheless concerning.
This is especially true as consumers tend to prioritise their mortgage payments over the repayment of any unsecured loans they may have, the credit bureau said.
“Quite simply, the picture that Compuscan’s statistics paints is that many consumers have, increasingly, been struggling to manage their debt,” said Jacobus Eksteen, senior data analyst at Compuscan.
“There may, of course, have been various reasons for this – such as fuel price hikes, inflation, a weak rand and thus general increases in the cost of living.”
“But, comparing bureau trends with those of Stats SA’s Quarterly Labour Force Survey, it can very likely be concluded that low economic growth and unemployment contributed significantly to thousands of credit-active consumers’ inability to keep up to date with the payment of their monthly installments,” he said.
Further supporting the fact that unemployment underpinned the trends in the lending space, Compuscan noted that the number of open accounts remained relatively stable during the period from Q1 2016 to Q1 2017.
This was reflected by a year-on-year decrease in the number of open accounts (all types) of 8% as recorded by the bureau.
“This decrease in the number of open accounts could have been, in part, as a result of stricter lending criteria in line with new affordability regulations that were brought into effect last year,” said Eksteen.
“Consumers are required to present proof of income when applying for credit. As such, factors such as possible decreases in salaries due to poor economic growth and an increase in unemployment might have contributed to the decrease in the number of open accounts listed on the bureau.”
“It is unlikely that credit providers would provide loans to individuals that are unemployed.”
This could easily contribute to a gloomier outcome for South Africa’s financial situation, warned Compuscan, as credit is essential for the healthy functioning of the economy. As such it highlighted that the need to create job opportunities is of paramount importance.
“South Africa is in a technical recession and while education is vitally important, job creation should be made a national priority and a great deal of focus, energy and funds should be applied to it,” said Eksteen.
Compuscan revealed that there was a 32% increase from Q1 2016 to Q1 2017 in the number of fixed-term (unsecured) loans that had been granted to consumers.
The bureau also pointed to a drastic year-on-year increase of 37.7% in the number of vehicle and asset finance (VAF) that were three or more months in arrears and a 9.3% increase in those that were 1-2 months in arrears.
There was additionally a significant 7.3% year-on-year increase in credit card accounts that were three or more months in arrears, while there was only a slight 1.1 % decrease in the number of credit card accounts that were 1-2 months in arrears.