The ability for people in South Africa to repay their debt is about to get worse

New data from Transaction Capital shows that the ability for consumers in South Africa to repay their debt has deteriorated as approximately eight million South African employees are “not working” – increasing the risk of higher unemployment.

Transaction Capital’s Consumer Credit Rehabilitation Index (CCRI) for Q2 2020 sampled approximately four million consumers in credit default from its proprietary database.

The index measures consumer credit rehabilitation prospects using an algorithm that estimates their propensity to repay debt and make positive progress towards financial rehabilitation.

The results showed that consumers’ propensity to repay debt deteriorated by 2.6% compared to a year earlier (Q2 2019) and 2.5% when compared to the previous quarter (Q1 2020).

The financial services group noted that of the 25.2 million credit-active South African consumers at 31 December 2019, more than 40% (10.7 million) had impaired credit records.

It said that the longstanding weak economic conditions have been exacerbated by the Covid-19 crisis putting further strain on consumers.

The level of unemployment increased to 30.1% in Q1 2020 (from 29.1% in Q4 2019) and household debt levels are now likely to be even higher than the 72.8% reported in Q4 2019, contributing to a deterioration in consumers’ propensity to repay debt.

“Despite relief from lower fuel prices and the repo interest rate at a record low of 3.75% since 1973, with about 8 million South Africans currently not at work and further anticipated job losses, pressure on consumers in the near term will intensify,” said David Hurwitz, chief executive officer of Transaction Capital.

“The consumer’s propensity to repay debt is highly correlated to employment levels. Consumer sentiment is weak; employment remains under pressure; and key consumer support measures (such as the temporary employee relief scheme and debt repayment holidays) will expire in the upcoming few months – all adversely impacting the consumer’s ability to service debt.”

Employment and Labour deputy minister Boitumelo Moloi said Wednesday (22 July), that the Covid-19 Temporary Employers/ Employee Relief Fund, set up to help those who found themselves out of work due to lockdown, will be extended to August.

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