Alarm bells for middle-class and rich South Africans

New data shows that South Africa’s mid-to-high-income households are increasingly defaulting on their loans as consumers across the spectrum grow desperate for more credit to cover their costs.

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, has seen a deterioration from 3.97 in Q4 2022 to 4.68 in Q4 2023 – a relative change of 18%.

As of the end of 2023, South African households had close to R2 trillion in outstanding debt, with R25.8 billion being in default.

Product-specific metrics also changed for the worse year-on-year, with home loans and credit cards showing the largest deterioration at 60% and 14%, respectively.

Experian said that this suggests that mid-to-high-affluence consumers – who normally qualify for high-end credit products and home loans – are finding it increasingly difficult to repay debt and continue to use their credit cards extensively.

There has also been a surge in Debt Review applications as higher-affluence consumer groups are increasingly struggling to honour their debt commitments.

This implies a growing demand for financial counselling and debt management services.

“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 Jaco van Jaarsveldt from Experian.

“One of the significant points regarding the cost of living has been the costs associated with electricity – both from an Eskom tariff perspective and an alternative electricity perspective like generators and solar – which are becoming increasingly prevalent in the face of continued load shedding.”

The prime lending rate has remained unchanged since April 2023 as the South African Reserve Bank tries to get CPI near the target of 4.5%.

“The rapid rate at which interest rates have increased and have now been sustained for the last ten months has been putting immense strain on credit-active consumers – particularly those consumers with exposure to secured credit, like homes and vehicles,” said Van Jaarsveldt

“This pressure has also been felt by younger consumers who are relatively new to the credit world, for whom having to navigate times of sustained high-interest rates is new territory.”

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