Risky Business: Making credit safe again

Managing risk has become a central focus for companies in the financial services sector.

Economic uncertainty, inflationary pressures, political fluctuation and evolving regulatory frameworks are the backdrop for businesses and individuals all around the world.

Spurred by the aftershocks of the COVID-19 pandemic, fluctuating commodity prices, and geopolitical instability, there has been a global tightening of monetary policy and increased lending rates. In developed economies, there is a heightened focus on risk management as lending institutions navigate the complexities of a more volatile economic environment. While credit conditions were historically more relaxed in the years following the global financial crisis of 2008, the landscape has shifted toward greater scrutiny, with institutions tightening their lending criteria and making more conservative decisions.

Data from the National Credit Regulator shows the total credit applications has generally increased but that the % of applications rejected has gone up from about 40% in 2007 to just under 68% in Q2 2024. Responsible lenders are increasingly careful not to over indebt customers, declining credit services to customers who are unable to afford the repayments.

In South Africa, the credit environment reflects many of the global trends but also has unique local dynamics that influence lending practices. South Africa's economy, like many others, is grappling with inflation, which reached its highest levels in several years in 2023. This has placed a strain on consumer purchasing power and increased the cost of borrowing, making it more difficult for households and businesses to manage debt.

However, the picture is not completely negative. The Eighty20/XDS Credit Stress report shows CPI dropping from its 2022 high and also some relief in the prime overdraft rate.

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