Big turn for consumers in South Africa – but there’s a catch for top earners
South African consumers are slowly getting to grips with managing their debts, but the wealthier groups—who tend to have more big-ticket loans—are still under pressure.
This is according to the latest Experian Consumer Default Index (CDI) for the second quarter of the year, which showed a positive turn for the first time in two years via an improvement in the credit defaulting behaviour of South African consumers across various loan types – including home loans, vehicle loans, personal loans and credit cards.
The CDI outlines that the rising living costs have dented affordability for consumers, raising concerns about the ability to meet debt obligations and qualify for new credit.
This trend is evident in a general decline in new product sales, with the exception of Retail Loans, which have seen consistent growth since January 2024.
The composite CDI has shown slight improvement for the first time in nearly two years, with year-over-year gains across most products, except for Home Loans.
The most notable improvement was in Credit Cards.
While the CDI shows a positive turn for consumers, Experian noted that the marked improvement is also mainly linked to the fact that approval rates from lenders remain particularly low.
Adding to the caveats, wealthier South Africans, known as FAS Group 1 (Luxury Living), continue to experience year-over-year deterioration in their CDI while all other FAS groups reported meaningful improvements.
Experian assesses the market through its Financial Affluence Segmentation (FAS) system, which can be broadly defined by gross income (2021 levels):
- FAS 1: Luxury Living (~R55,000 per month)
- FAS 2: Aspirational Achievers (~R27,000 per month)
- FAS 3: Stable Spenders (~R13,000 per month)
- FAS 4: Money-Conscious Majoirty (~R8,000 per month)
- FAS 5: Laboured Living (~R5,000 per month)
- FAS 6: Yearning Youth (~R4,500 per month)
FAS Group 3 (Stable Spenders) remains on a negative trajectory for Retail Loan CDI, the group noted.
Additionally, vintages in Home Loans portfolios are exhibiting a long-term decline, surpassing that of Vehicle Loans. Notably, FAS Groups 1 and 2 account for at least 43% of the total volume of credit products involved in Debt Review applications.
The Composite CDI reported a relative decline quarter-over-quarter, dropping from 4.69 in March 2024 to 4.77 in June 2024. This reflects expected seasonal patterns influenced by post-Festive Season spending, particularly during Black Friday.
Year-over-year, however, the CDI has improved for the first time in two years, moving from 4.88 to 4.77, indicating a 2% relative improvement.
Experian noted that this suggests consumers are stabilising, even as they continue to struggle with debt commitments, in contrast to the rapid deterioration seen in 2023.
The only area of relative decline was in Home Loans, which decreased by 3%, although this is an improvement from a 21% drop in Q1 2024.
Home Loans represent 53% of the total ~R2.7 trillion debt market exposure, but gains in other sectors helped mitigate the overall negative impact.
Significant improvements were noted in Credit Cards and Vehicle Loans, which saw year-over-year declines in CDI from 8.17 to 7.41 and 4.85 to 4.58, respectively, representing improvements of 9% and 5%.
This trend indicates that even high-affluence consumers are facing constraints in acquiring premium credit products, reflecting broader market challenges.
Analysis
With South Africa facing higher interest rates for an extended period, many consumers have struggled to honour their debt agreements while grappling with the rising cost of living.
The sustained high interest rates are linked to the South African Reserve Bank’s efforts to reduce the CPI.
The appetite for consumer credit in South Africa remains high, indicating that consumers are still constrained.
Experian noted that the ~R2.7 trillion debt market consists of the most challenging loans to service, given the higher interest rates.
Head of Commercial Strategy and Innovation at Experian, Jaco van Jaarsveldt, said that while appetitie high, approval is low and this has a lot to do with financial services providers risk appetite levels.
“Over the last two years, financial services providers (banks, retailers, lenders) have stopped lending at the rate [that they used to] so they they’ve applied far more conservative lending practices ,” van Jaarsveldt said in an interview with the SABC.
He said that this is resulting in improved performance because there’s fewer people to default due to the fact that they lent less.
Van Jaarsveldt believes that at the start of what is predicted to be an interest rate-cutting cycle, there is hope for marked improvements.
“Now with rate decreases starting… the biggest benefit will be felt in the secured lending space and that’s where the majority of outstanding debt in South Africa lies and as interest rates reduce we expect the CDI also to do marketly increase as we go into the next few quarters,” said van Jaarsveldt.
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