On the positive side, South Africa has emerged from the third wave with more than a quarter of the 18+ population vaccinated, but consumers have been hit with significant petrol, electricity and food price increases that will have ramifications on the credit stress of most South Africans. Eighty20’s Credit Stress Report 2021 Q3 – compiled in collaboration with XDS – unpacks some of these developments

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2021 Q3 paints a bleak picture for South Africa

Our last credit stress report showed some early signs of economic recovery from the devastation of Covid,  as South Africa began to emerge from the hard lockdowns. But while the vaccination roll out began for everyone aged 18+, and the country emerged from Level Four Lockdown, the news has been rather bleak since Q2. It began with the riots that engulfed KZN and Gauteng, causing R50bn in damages and shaking investor confidence in South Africa (as well as the confidence of its citizenry if the recent municipal elections are anything to go by). This was followed by a 17.8% increase in electricity prices and a surge in the price of petrol.  

Stats SA incorporated data from additional new sources and estimated the economy to be 11% larger than previously thought, which makes quarter on quarter comparisons meaningless this quarter. Oil prices continue to climb, suggesting momentum in the economy, but mixed with a weak rand this has wreaked havoc on not just motorists but all consumers.  

Eighty20’s 2021 Q3 Credit Stress Report – compiled in collaboration with XDS – unpacks some of these developments. We’ve also profiled the credit behaviour of three of the poorer segments from our ENS Customer Profiling Tool that we think will be hardest hit by the increases in petrol and electricity prices.

These segments are Students and Scholars, Mothers of the Nation and Hustling Males. Though petrol price increases are often spoken about in reference to motorists, it is the poor who will be most severely affected. These three segments own vehicles at a rate less than half the national average, but increases in taxi fares, hard choices around discretionary spending and higher food prices will have a noticeable impact.

Though these three segments sum nearly 18m people (40% of the adult population), they are not a big part of the credit market. They make  up 5% of all loans, but only 0.2% of loan balances. In terms of creditworthiness, they are also not doing terribly well, being the highest percentage with overdue balances on loans and the highest average months in arrears of all 8 ENS segments. 

 

Students and Scholars This segment is people under the age of 20, 88% of whom are students. Most are still living with, and reliant on, their parents, as seen by the high penetration in both medical aid and private security. This group is just starting on their credit journey, mainly with retail credit, but almost none of them have a mortgage or vehicle asset finance (VAF).

 

Mothers of the Nation This segment is 41% single mothers in lower paying positions such as domestic workers, clerks, and cashiers. By population, there are only 1m more Mothers of the Nation than Hustling Males, yet they hold 7X their loan balance and 10X the number of loans. The percentage with loans in default is higher than the national average and will continue to rise given the bleak economic circumstances. The petrol price increase will reach their pockets through higher taxi fares and the higher cost of putting food on the table.

 

Hustling Males This segment is nearly 60% unemployed, with a third still living with their parents. If they have work, it is part-time piece work at a low wage. Almost none have mortgages or VAF, but 7% have credit cards. Despite their poverty, on average 50% of their monthly income goes to debt repayment. The petrol and electricity increases will affect the likelihood of businesses hiring unskilled or semi-skilled labour, the cost of looking for work and of feeding families.

 

We saw another quarter of plateaued  default rates in the 18-24 year age group, although it remains the highest of all age groups. Three out of five credit active individuals in this age group are in default, with default rates greatest in retail accounts (92% of accounts in default are retail accounts).

Some other highlights in this report:

The current balance on all loans is just over R2 trillion, with half of that value in mortgages, just under a quarter in VAF, and unsecured loans, credit cards and retail accounts making up the other quarter.

The overdue balance on all loans is fast approaching R200bn (9.4% of total balances compared to 8.8% in 2021 Q2). This is up from R160bn in 2019 Q3, with more than 50% of this balance being made up of unsecured credit despite contributing only 15%  of the total current balance of all loans. 

The stress in the middle class can be seen in the overdue balance on secured products, which has increased by almost 30% YoY.

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Eighty20 and XDS have created a National Segmentation (ENS) Customer Profiling Tool. The ENS, while protecting customer privacy and data protection, enables the most comprehensive view of South African adults. Using statistical techniques to overlay diverse datasets, including credit bureau, national and regional surveys, thousands of variables are mapped to each consumer. Your consumers are mapped to one of 1,500 micro-segments, 48 sub-segments and 8 segments using either SA ID, mobile number or key variables such as age, income and gender. Find out more here or call us for more information.

Download the Credit Stress Report