SA consumers continue to feel the pinch; 62% declined credit

South Africans who apply for credit today are more likely to be rejected than if they had applied a year or two ago, according to the National Credit Regulator (NCR) Consumer Credit Market Report.

In the first quarter of 2021, 62.5% of people who applied for credit were rejected, of 10 million people who applied. The alarming figure according to TPN Credit Bureau CEO Michelle Dickens, is an indication that many South Africans are still under considerable financial pressure.

The loss of jobs – evident in the country’s staggering unemployment numbers –  coupled with loss of income due to the impact of the coronavirus pandemic, has seen credit providers more hesitant to offer credit than they were pre-pandemic.

What most consumers can afford has changed significantly in the past year, and according to Dickens this will have an impact on creditors’ lending appetite.

“New debt is absolutely going to be based on an affordability assessment. So when you go to any credit provider at the moment and you’re looking for additional credit, part of that process must be understanding the affordability of the consumer to repay the debt and that means understanding the current income of the consumer,” she tells Moneyweb.

Consumers remain disciplined with mortgage payments

As a collective, the country’s credit bureaus hold records on 27.5 million credit active consumers, who in total have 85 million credit and service agreements with credit bureaus.

These agreements reflect borrowings that amount to R2.04 trillion; mortgages account for half of this.

“The credit owed by consumers is made up by mortgages (51%), secured credit (22%), credit facilities (13%), unsecured credit (10%) and short-term credit (less than 0.1%),” TPN says in a statement.

TPN further adds that South Africans were disciplined with paying their mortgages despite the financial pressure. As during the 2020 hard lockdown, 89% of South Africans paid their monthly bond payments on time. This increased to 91% in the first quarter of 2021.

Payment holidays offer much-needed relief

Relief measures implemented by the South African government and credit providers (such as payment holidays) in response to the economic pressures faced by consumers in 2020, helped stabilise consumers’ credit health.

However, because the relief was a temporary solution, TPN says some consumers naturally slipped back into bad payment habits.

“As the payment holidays came to an end, more consumers slid back into arrears of three months or more, with the number of consumers in good standing declining to 61.8% [from 62.9% in the first quarter of 2020.] by the first quarter of 2021,” TPN says.

Improving consumer credit

Dickens says that to improve consumers’ credit standing and benefit the economy, more jobs need to be created to increase consumers’ affordability. She believes consumers’ affordability will play a significant role in whether or not they are approved for credit in the future.

Head of Debt Busters Benay Sager however tells Moneyweb that the onus to improve one’s credit standing lies largely with the consumer. He says that consumers need to be realistic about their financial situations and take on the responsibility of educating themselves about their credit standing to avoid bad credit.

“All of our consumers who have ever borrowed money or think of ever borrowing money should know their credit status  and their credit score. If you know what that score is and if you know where you stand, you have a much better idea of what kind of credit profile you have and what you should be able to borrow,” Sager tells Moneyweb.

“It’s very important for consumers to be truthful when they apply for a loan. Don’t overextend yourself thinking that you’re going to get a loan, because if you cannot pay it back then you will get into trouble. It may not happen tomorrow but it will happen at some point,” he adds.