Dark clouds for middle-class and rich South Africans

 ·24 Jun 2024

Middle—and upper-class South Africans still turn to credit cards to cover monthly expenses, as many struggle to repay debt.

Experian’s latest Consumer Default Index (CDI) for Q1 2024 has remained relatively stable across all consumer segments from December 2023 to March 2024.

The index measures rolling default behaviour of South African consumers with Home Loan, Vehicle Loan, Personal Loan, Credit Card, and Retail Loan accounts.

That said, this year’s data is compared to last year’s, and the CDI continued to show a deterioration from 4.56 to 4.69.

“In simpler terms, more people are struggling to repay their loans compared to last year,” said Jaco van Jaarsveldt, Experian’s Head of Commercial Strategy and Innovation.

“However, considering the index has remained flat quarter-on-quarter, this indicates that although consumers still find it challenging to honour debt commitments, the situation is not worsening at the same speed observed in 2023,” adds van Jaarsveldt.

On a product level, Home Loans saw the largest deterioration in CDI, with a 21% drop from 2.22 to 2.68 year-on-year.

Although still significant, the rate of deterioration is slowing down. In Q4 2023, the annual deterioration rate was 60%.

As home loans account for the majority share of the total market exposure, the deterioration in Home Loans was the main driver of the overall drop in the composite CDI.

Credit cards were the other primary (albeit less significant) driver of the composite CDI’s drop, moving down 5% from 7.28 to 7.63.

This suggests that mid-to-high affluence consumers, who usually qualify for these high-end credit products, are struggling to repay debt and are becoming more dependent on their credit cards to cover monthly expenses.

Even if Consumer Price Inflation (CPI) is now within the South African Reserve Bank’s target range of 3%—6%, the cost of living crisis is continuing to put pressure on consumers.

“The rapid rate at which interest rates have increased and have now been at a sustained high level for the last 12 months has put immense strain on credit-active consumers, particularly those exposed to secured credit,” said Van Jaarsveldt.

The report also shows a strong market appetite for consumer credit, with application levels reaching record highs in Q4 2023.

As approval levels remain low at 32.2%, roughly two-thirds of applications are rejected, mainly because consumers cannot afford additional credit commitments.

Read: The ‘perfect storm’ that could cost South Africa billions – and threaten power supply

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