The National Credit Regulator (NCR) recently issued its fifth annual Consumer Credit Report covering the twelve months ending December 2009. Although the latest statistics point to a slight improvement in credit extension (the amount of money lent to dome
Although this was the most significant increase in credit granted for two years, the gross value of credit granted for the quarter was still significantly lower than the amount granted prior to the period of contraction! In other words: South Africans are borrowing more, but not nearly as much as they were prior to the 2008 sub-prime crisis. In the final quarter of 2007 a massive R102.3bn of credit was extended.
Where the money goes
A sensible approach to personal finance is to use credit for the traditional ‘big ticket’ items such as houses and motor vehicles. Unfortunately today’s ‘instant gratification’ culture dictates we use credit for any manner of appliance, luxury good or service. Instead of saving up for furniture or overseas vacations, modern consumers simply swipe their credit card and defer payment to some future date. The National Credit Act’s reason for being is to protect these consumers from themselves.
The bulk of domestic credit finds its way to the ‘big ticket’ items already mentioned. So, for example, the value of new mortgages increased from R17.82bn (Q3) to R21.08bn in Q4. If anyone is wondering why activity in the housing market is so subdued of late they need only look at the value of new mortgages in the final quarter of 2008, an impressive R53.14bn. And you definitely need a decent income to back your mortgage application. The NCR says 80% of approved mortgages between December 2008 and December 2009 went to individuals earning gross monthly incomes in excess of R15 000. Secured credit – typically vehicle finance where the lender has an interest in the asset – also increased significantly. The R20.17bn extended in Q3 surged 17.32% to R23.67bn in the last three months of the year. These statistics echo in recent housing sales and motor vehicle sales numbers.
Activity in credit-dependant sectors of the economy are bound to pick up as liquidity improves. Credit extension in the unsecured market jumped 25.83% between the third and fourth quarters 2009, from R8.37bn to R10.54bn. This statistic is somewhat surprising given the recent fall from grace of micro loan businesses such as Blue Financial Services and African Dawn.
Drowning in debt
Consumers would have to dig deep if the country’s lenders called in their loans at 31 December 2009. The total outstanding consumer credit balances (or gross debtors’ book) stood at R1.13trn comprising: mortgages R740.95bn, secured credit agreements R211.98bn, credit facilities R125.14bn, unsecured credit R54.60bn and short term credit R692.93m. Banks are exposed to the bulk of this debt mountain (R1.01trn), with retailers R39.27bn, non-bank vehicle financiers (R36,74bn) and other credit providers (R44,68bn) carrying the balance.
The problem is some 18 million South African credit-active consumers are struggling to meet their debt obligations! Gabriel Davel, chief executive of the NCR, said 10.16 million accounts were in arrears for three-plus months. “The number of consumers with impaired records is still increasing, up 90 000 over the previous quarter and 880 000 over 2008,” he said. “But there are signs the level of debt stress may be easing.” Despite these challenges domestic consumers remain hell bent on securing credit to fund their often extravagant lifestyles. The NCR says there were 146.88 million credit enquiries in Q4 2009!
Ill-discipline leads to catastrophe
South Africa’s National Credit Act (NCA) is a consumer protection legislation aimed at protecting the consumer from reckless credit providers. At the height of South Africa’s housing boom banks were granting loans extremely recklessly, often allowing a single borrower to finance multiple homes. This turned out to be a recipe for disaster, as demonstrated by the sub-prime crisis that ripped the heart out of the US financial system in 2007/8. Since then the US mortgage market has had to deal with six million delinquent mortgages (including foreclosures) and in excess of 14 million mortgages where debt exceeded property value. Not a pretty picture when you consider banks’ security for these loans vests in the underlying asset.
Editor’s thoughts: Banks have started lending again, but we doubt levels of credit extension will reach the heydays witnessed in the first seven years of the new millennium. Banks will have to take a tough stance on new credit applications to avoid a repeat of the impairment circus we witnessed in 2008/9. Have you applied for a mortgage bond recently? Were you happy with the decision taken by your bank? Add your comment below, or send them to gareth@fanews.co.za
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