South Africans still feeling the squeeze

South Africa’s latest Credit Stress Report for Q3 2024 highlights growing reliance on credit in the country, despite numerous positive economic trends.
While inflation declines, credit defaults drop, load shedding stabilises, and retail sales surge, the report by Eighty20/XDS warns of a notable increased dependence on high-interest unsecured credit among individuals looking to cope with financial strain.
Bright sparks
The South African economy is exhibiting signs of recovery, with positive indicators buoying consumer sentiment.
The report highlights a significant drop in inflation, reaching a three-year low of 3.8% in September 2024.
This downward trend in inflation has prompted the South African Reserve Bank (SARB) to cut the repo rate twice, resulting in a decline in the prime lending rate.
Another encouraging development is the prolonged absence of rolling blackouts, which have plagued the country for years. A stable power supply has contributed to a more favourable environment for businesses and consumers alike.
Further bolstering consumer confidence is the two-pot retirement system, which has injected over R35 billion into people’s pockets.
Retail sales surge
Reflecting the positive sentiment, the retail sales index has experienced a steady upward trajectory, indicating a revival in consumer spending.
The index increased by 0.9 percentage points quarter-on-quarter and 1.8 percentage points year-on-year, suggesting a robust recovery supported by lower inflation.
The number of retail accounts also rose significantly, marking a 1.8% quarter-on-quarter increase.
Concerns
Despite the positive economic backdrop, the report unveils a concerning trend in consumer credit behavior.
The number of credit-active individuals has continued to rise, increasing by 1.4% year-on-year, accompanied by a 1% growth in credit products.
This growth, however, is overshadowed by the substantial increase in total loan balances, which have reached R2.47 trillion, representing a 2% year-on-year increase.
Notably, credit card and retail credit balances account for a significant 40% of this growth.
Adding to the concern, overdue balances have climbed to R194 billion, growing by R4.7 billion over the past year, with credit card and home loan balances showing the most pronounced increases.
Overdue balances on home loans have surged by over 23% year-on-year, while credit cards have witnessed a nearly 9% increase.
The increase in credit card and retail loan usage, coupled with the rise in overdue balances, suggests that consumers are turning to these products to cope with rising costs and stagnant wages.
It noted that this dependence on high-interest unsecured credit products underscores a concerning trend of South Africans relying on credit to navigate financial challenges.
According to the South African Reserve Bank’s (SARB’s) Quarterly Bulletin for Q3, household finances weakened over the period, hurt by slower income growth and stagnant employment.
Not all doom and gloom
While the report highlights areas of concern, it also offers some positive insights.
The percentage of individuals in credit default has declined by over 8% year-on-year, marking a consistent downward trend over the past three years.
Moreover, the proportion of loans in good standing has surpassed pre-COVID-19 levels, reaching 64.5% compared to 62.0% in 2020 Q1.
Credit breakdown
The report also provides insights into the distribution of credit among different segments of the population.
The data reveals a growing concentration of credit value among a smaller group of individuals.
While total outstanding loan balances have experienced a 5% compound annual growth rate (CAGR) since 2021, the CAGR for the number of credit-active individuals is only 1.4%.
Home loan balances are growing at a rate nearly 50X that of home loan holders since 2021. Credit card balances are growing at a rate that is 11X that of credit card holders.
This suggests that a smaller proportion of the population is accumulating a larger share of the outstanding credit.

Furthermore, the report examines credit holdings across various demographics.
Individuals under 35 years of age, who constitute 60% of the population, hold only 5% of the total outstanding credit, primarily in the form of unsecured retail debt, personal loans, and credit cards.
As individuals progress through different life stages, their credit portfolios evolve, with vehicle asset financing typically acquired in their mid-20s and home loans gradually becoming a larger component of their debt burden as they enter their 30s.
The report also observes that rising living costs and insufficient retirement savings have led some retirees to maintain or even expand their credit exposure, particularly through credit cards.
Going forward
While positive indicators such as declining inflation, improved employment figures, and sustained periods without load shedding fuel optimism, concerns about growing credit reliance, particularly on high-interest unsecured products, warrant attention.
“This expansion of credit, combined with inflationary pressures and slower-than-expected wage growth, has created a precarious financial situation for many individuals,” said Eighty20/XDS.
“Debt levels have surged while disposable income has remained stagnant or even decreased for a large portion of the population,” it added.
The report’s findings largely emphasise the need for prudent financial management and stresses the importance of addressing underlying socio-economic issues to ensure sustainable and inclusive growth.