Southern Africa

Consumers increasingly unable to repay their debts after banks end payment holidays.

  • Transaction Capital Risk Services ‘Consumer Credit Recovery Index indicates a 2.5 percent fall in consumers’ ability to pay in the three months to end-June.
  • TransUnion’s Wave 5 Study reveals that, after bank payment holidays ended in June, customers are concerned about not being able to pay retail accounts and personal loans.
  • Most are charged just a small sum of what they are supposed to be charged.

As banks prepare to present their financial results for the period ended in June, more reports point to the possibility of significant surge in bad debts as more people lose income.

On Thursday, Transaction Capital Risk Services (TCRS), sister company to minibus taxi financier SA Taxi, said a combination of job losses and uncertainty in many creditors’ collections processes had increased the risk that more borrowers would default on their debt, despite relief initiatives including record-low interest rates and bank repayment holidays that ended in June.

A fall in propensity to repay debts means more people are likely to have defaulted on some or all their debts or will soon do so. The fact that some households took on more debt when most industries were not operating during the hard lockdown means that household debt levels are now likely to be higher than the 72.8% reported in fourth quarter of 2019, further exacerbating  propensity to repay debt, said TCRS.

TCRS, which specialises in debt management and buys books that have been written off or are close to being written off by credit companies, released its Consumer Credit Rehabilitation Index (CCRI) for the second quarter of 2020.

The index, which tests consumer credit recovery prospects, showed that South African consumers’ tendency to repay their debt declined by 2.6 percent compared to the second quarter of 2019, and by 2.5 percent as compared to the first three months of 2020. The index samples approximately four million consumers in credit default from TCRS ‘s proprietary database.

“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,” said Transaction Capital CEO David Hurwitz.

TransUnion, which has regularly been monitoring consumers’ ability to pay their bills and debt since the lockout started, said while in its previous polls, customers were more worried about paying rent and utilities, after bank payment holidays ended in June, retail or clothing accounts and personal loans had become their biggest problem now.

“Customers tend to pay less down against current debt to maintain cash flow. Almost 38 percent of impacted customers claim they are paying only a partial amount they can afford,” wrote TransUnion in its new survey.

About 15 percent of all those who struggle honor their loans have refinanced or renegotiate their deals and 20 percent of all who had repayment holidays would like to see the deal expanded.

Banks are prepared

Yet one of the country’s largest banks, FNB says while several clients are still asked to restructure their debt after the expiry of the payment holidays, struggling, there is no course for alarm yet.

FNB CEO, Jacques Celliers said banks have very sophisticated systems to manage these situations and the liquidity that is in the system during this crisis should help.

“Over the 180-odd years, we are used to this process of people changing their finances.

If there are droughts in the agricultural areas, for a year or two there is no income. We’ve got really sophisticated systems to go through these stuff, “he said.

Celliers is nevertheless of the opinion that the interest rate cuts, decreased living costs as people move and spend less would restrict the amount of defaults from consumers. He added that people who lost their jobs at the beginning of the lockout were trying to find work and trying to recover now.

“I don’t think we are in the chaotic process yet and I don’t think we will get be there. I think we are well provided. We put enough resources aside. Our balance sheets are solid.

You will see when all the banks results come out. Everybody should have done what they had to do.

“But you are right, the number of people who are now going through the first month of trying to get their payment behaviour back on track, that’s our next step,” said Celliers.

FNB has not stopped supporting customers only because the payment holidays have ended, but the only change now is that relief is given on individual basis to those who continue to need it.