{"id":631901,"date":"2022-10-06T09:23:04","date_gmt":"2022-10-06T07:23:04","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=631901"},"modified":"2022-10-06T09:23:04","modified_gmt":"2022-10-06T07:23:04","slug":"double-blow-for-south-africas-middle-class","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/631901\/double-blow-for-south-africas-middle-class\/","title":{"rendered":"Double-blow for South Africa’s middle-class"},"content":{"rendered":"

With Reserve Bank governor Lesetja Kganyago pointing to further interest rate hikes in the coming months, new data from the National Credit Regulator (NCR) shows a rising trend in the number of rejections in credit applications as South Africa’s middle-class feels the pinch.<\/p>\n

The big interest rate cuts that followed the pandemic shock spurred a sharp rise in demand for credit as the economy gradually reopened, said Absa in a note on Thursday (6 October). However, the pace of the increase is now tapering off as rates continue to rise.<\/p>\n

The Reserve Bank announced a second 75 basis point rate hike in September, taking the benchmark rate to 6.25%. While economists have pencilled in at least another 50 basis point hike still to come, the central bank itself has made it quite clear that there is room for more<\/a>.<\/p>\n

In the South African Reserve Bank’s six-month policy review, it noted that at 6.25%, the benchmark matches its January 2020 level \u2013 before stop-start coronavirus lockdowns and supply-chain disruptions prompted unprecedented easing \u2013 compared with an average rate of 6.64% in the year before the pandemic struck.<\/p>\n

However, with inflation still sitting far above the targetted range (4%-6%) at 7.8%, the concern from analysts is that rate hikes are coming harder and faster than even the SARB’s own model has forecast.<\/p>\n

To date, the central bank has taken a hawkish view on inflation, and decisions on rate hikes have not been unanimous, with almost all dissenting votes calling for even greater hikes.<\/p>\n

These rate hikes are putting pressure on already-embattled consumers – particularly the country’s middle class, who are saddled with debt from home and vehicle loans. And this pressure is now starting to be reflected in credit data.<\/p>\n

Quarterly credit data from the NCR’s Consumer Credit Market Report and Credit Bureau Monitor shows that, after hitting a record high in Q1 22, the number of new credit applications was broadly unchanged at 13.1 million in Q2.<\/p>\n

While this is about 14% higher than the average quarterly number of new applications in 2019, the supply of credit is still a constraint, Absa noted.<\/p>\n

“The rejection rate on new credit applications has risen slightly in recent quarters, reaching 66.7% in Q2 from 66.4% in Q1 and 66.0% in Q4 – again much higher than the 57% average in 2019.<\/p>\n

“We suspect that these higher rejection rates reflect lender concern about the creditworthiness of low- to middle-income consumers, where job and income losses due to the pandemic continue to be relatively large,” the bank said.<\/p>\n

The value of new loans from banks and other credit providers increased by R146.6 billion on a seasonally adjusted basis, equivalent to q\/q growth of just 2.1%. This was mostly driven by mortgage advances (+4.9% q\/q seasonally-adjusted), credit facilities (i.e., credit cards, store cards and bank overdrafts, +3.6% q\/q) and unsecured credit (+3.5% q\/q).<\/p>\n

This has more than offset a slight decline in non-mortgage secured credit, the bank said.<\/p>\n

Debt is rising<\/strong><\/p>\n

The NCR’s data shows that total outstanding consumer credit balances in June 2022 was R2.19 trillion, representing an increase of 1.13% quarter-on-quarter and of 6.35% year-on-year. The trends for outstanding balances for the quarter ended June 2022 were as follows:<\/p>\n