The South African Reserve Bank (SARB) has published a new review of the country’s financial stability across key economic sectors.
One of the main focuses of the report is households, with the SARB noting that household finances remain under pressure, in line with challenging economic and labour market conditions.
The central bank said that real disposable income grew by only 0.9% in 2019 (slowing from 1.5% in 2018). Household net wealth gains have also slowed on account of muted asset price gains.
“As a share of disposable income, household net wealth has been gradually declining since 2014, but remains substantial at 363%.
“However, this wealth is unevenly spread across the population, with a significant concentration at the top end of the income distribution,” the bank said.
One of the key concerns cited in the review is an increase in lending and how households are using more of their disposable income to service debt.
“The rate of growth in bank lending to households has edged up over the past two years. Credit extension to households increased faster than disposable income in 2019, reflecting a trend change.
“The household debt to-disposable-income ratio fell consistently between 2009 and 2018 as debt burdens were gradually worked down following a period of excess in the mid-2000s.”
While the overall debt position of households is more favourable than it was a decade ago, the composition of household debt has moved increasingly towards higher-cost forms of financing, the SARB said.
“As a result, households are spending, on average, 9.4% of their disposable income on servicing debt – the most since 2016.”
While the review does not place a monetary value on this percentage, an April report from TransUnion provides context as to how much South Africans owe on outstanding loans.
It shows that:
- The average South African owes R19,265 on their credit card account, while the average credit line (the amount of credit a person may borrow from) is R32,973;
- The average outstanding amount on home loans is R514,938;
- The average outstanding amount in vehicle financing loans is R187,193;
- The average outstanding amount on personal loans is R36,835.
The SARB said that unsecured credit continued to grow at a faster pace than secured credit in 2019.
It said that the rate of unsecured credit growth accelerated to 10.2% in 2019, up from 6.6% in 2018. Meanwhile, secured credit grew by 5.3% in 2019, increasing slightly from 4.2% in 2018.
“The relatively high cost of unsecured credit, as well as the nature of its use (which is typically for consumption rather than investment), implies that it poses a higher risk than secured credit,” it said.
“This risk is lifted by the fact that the average term of these loans has increased in recent years. While secured credit is granted mainly to upper-income consumers, unsecured credit is more evenly spread across the income distribution.”
The SARB said that nearly one-third of new unsecured credit in 2019 was granted to individuals earning less than R15,000 a month.
By contrast, less than 1% of mortgage credit and less than 10% of other secured credit was granted to individuals in that income group.
“Consequently, the performance of an unsecured credit portfolio is far more dependent on the financial well-being of lower-income consumers.
“The SARB is closely monitoring the unsecured category of lending. It should be noted that bank provisioning and capital requirements for these types of loans are significantly higher than for secured credit, thus there are substantial buffers in place for the banking sector to absorb shocks to the unsecured credit portfolio.”