South Africans are desperate for credit – but the big banks aren’t biting
South Africans are increasingly turning to credit to meet their daily costs, but banks are becoming increasingly cautious in offering credit.
Data by the National Credit Regulator shows that the appetite for consumer credit increased from Q3 2023 to Q4 2023.
Credit analytics group Experian said the sustained high level of applications over the last quarter – recorded in its latest Consumer Default Index – suggests that consumers are seeking credit to cover their cost-of-living expenses.
This is not only among lower and middle-income groups but has now started impacting wealthier and more affluent households in South Africa.
However, banks are closing the taps, with Experian noting that approval levels for credit remain low (31.1%), with over two-thirds of all applications being rejected.
This stems from consumers’ inability to afford additional credit commitments, especially when factoring in the cost-of-living crisis facing many consumers, characterised by high interest rates and elevated inflation.
“It is more important now than ever before that consumers carefully consider their ability to repay before taking on additional credit and seek advice from financial institutions who granted the facilities if they find themselves struggling to meet their debt obligations,” said Experian’s Jaco van Jaarsveldt.
Moreover, the Experian Consumer Default Index (CDIx), which measures the rolling default behaviour of South African consumers with Home Loans, Vehicle Loan, Personal Loan, Credit Card and Retail Loan accounts, deteriorated from 3.97 in Q4 2022 to 4.68 in Q4 2023.
Middle- and upper-class South Africans, who typically qualify for high-end credit products, are also increasingly struggling to repay debt and continue using their credit cards.
Nedbank’s latest assessment of the broad money supply and credit furthers this, showing that credit card usage remained robust, dropping slightly from 9.3% in December to 9.2% in January, while overall household credit actually slowed from 4.3% to 4.1%.
Banks take a hit
“These findings have significant implications for financial institutions operating in South Africa. With an increased risk of defaults, particularly in home loans and credit cards, banks and other lenders may need to reassess their risk management strategies and lending criteria,” said Van Jaarsveldt.
Several credit providers have highlighted increased bad debts, with impairments rising. This has been recorded by all the big banks in South Africa.
Absa’s credit impairment charges increased by 13.4% to R15.5 billion in the financial year ended 31 December 2023. The everyday banking segment accounted for nearly half of all these impairments.
“The credit loss ratio increased from 96bps to 118bps, exceeding the group’s through-the-cycle target range of 75 to 100bps. The second-half credit loss ratio improved to 109bps from 127bps in the first half of 2021,” Absa said.
Although Absa’s group headline earnings increased by 1%, they dropped by 18% to R14.676 billion when looking solely at South Africa.
Nedbank’s overall headline earnings per share over the same period increased by 15%, but this growth was partially offset by the 30% increase in the impairment charge.
Nedbank’s credit loss ratio improved from 121 bps in the first six months of the year to 109 bps by the end, but this was still far higher than the 89bps seen in FY22.
For the six months ended 31 December 2023, FNB also saw its impairment charges increase by 31%.
The credit loss ratio thus jumped from 128 bps in the prior reporting period to 155 bps.
“This outcome is broadly in line with expectations given the group’s origination strategies and economic outlook. The strain was most evident in the retail portfolios,” said FNB.
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