Credit bureau Experian has released figures confirming that South Africans are in deep financial trouble.

The number of credit active South Africans who have missed a debt repayment for the first time ever is at a record high. This is based on the Experian Consumer Default Index (CDI) for the three months from February to April.

The index tracks the marginal default rate by measuring the sum of first-time defaulted balances (accounts that have never defaulted before) as a percentage of the total sum of credit balances. In this case default means missing one payment or more. The overall index rose from 4.11% to 4.94% which is a 20% increase in the value of the first-time defaulted debt compared to the same period last year.

The index shows that between February and April, first-time defaulters have now missed a payment on R20.73 billion worth of debt which represents 4.94% of the total R1.68 trillion of consumer debt. In terms of total defaults of three months or more, consumers have defaulted on over 10% of the R1.68 trillion outstanding debt. This is a sharp increase from less than 8% in April 2019.

“The continued impact of a worsening general economic environment in South Africa along with the early impact of the COVID-19 pandemic has resulted in the Consumer Default Index reaching its highest level over the past five years at a composite level,” says Jaco van Jaarsveldt, Chief Decision Analytics Officer at Experian Africa.

“Additional macro forces such as increasing unemployment and the lack of economic growth have had a significant impact on consumers’ ability to repay debt.”

Full lockdown impact not yet evident

It is worth pointing out that this index only reflects data up to the end of April so does not reflect the full impact of the lockdown. It is more a reflection of an already deteriorating economy and household balance sheet.

The index was only started three years ago, although it reviews data up to five years previously. Hence, although one can only state that this is the highest level over the last five years, it is possibly the highest on record.

Van Jaarsveldt says it is likely that we will see greater first-time defaults now than we experienced during the 2008-2011 credit crisis.

“The current breadth of the Covid-19 impact is broader and more direct across almost all consumer segments where, during 2008-2011 it was limited to a smaller population.”

These current defaults are despite the various payment holidays and support mechanisms offered by the banks.

“As the majority of the payment relief measures were based on various qualifying rules (unique to each bank) there were many customers that either did not apply or did not qualify and thus were not able to get payment support, thus resulting in the increased rate of first-time defaulters across the secured lending and general banking products,” says Van Jaarsveldt.

The main increase in first-time defaults came with secured lending products with a jump in both home loans and vehicle finance. The value of first-time defaults on mortgages jumped 38% compared to last year, accounting for R4.4bn value of defaulted debt.

Credit cards and personal loans also saw an increase in the number of people missing a payment for the first time. Interestingly retail loans (store cards) did not experience an increase in first-time defaults. Van Jasveld says this is not so much a reflection that people are managing their store cards any better, but rather that a large portion of consumers that have access to retail accounts had already experienced financial distress prior to the COVID-19 outbreak, and thus the reduced rate of first-time defaulters is not an indication of an improving financial situation for these consumers but rather one of entering financial hardship albeit at a slower rate.

As more affluent households tend to have home loans and car finance, it is not surprising that this segment saw the highest increase in new defaults.

High-net-worth individuals also affected

High-net-worth individuals, referred to by Experian as the “Luxury Living” segment, make up 2.5% of the population and have around R590bn of debt. In the three months between February and April, first-time defaulters missed repayments on R5.3bn of outstanding loans. This segment has mortgages in excess of R1.2 million and car finance of R450 000.

The “Aspirational Achievers” segment, defined as having a home loan balance of over R550 000 and an average opening vehicle loan balance greater than R250 000, make up nearly 10% of the population. They represent the highest amount of debt clocking in at nearly R698 bn and first-time defaulters defaulted on R7.6 billion of that outstanding debt.

The  “Money Conscious Majority”, which makes up the majority of the South African credit-active population (40%), saw a similar deterioration. They make up R184bn of outstanding debt and have defaulted on R3.1bn. Whilst exposure to secured credit facilities is lower in this group (less than 23% own a property) exposure to unsecured facilities like personal loans and retail credit is high.

“When looking at this group in isolation, it was established that a large portion of this population missed payments at the end of March and again in April. This is concerning due to the magnitude of this population and their dependency on unsecured credit facilities to cover month-to-month living expenses,” says van Jaarsveldt.

This article first appeared in City Press.