The South African Reserve Bank (SARB) has increased the repo rate by 0.25%. The announcement was made by Governor of the SARB, Gill Marcus, after a three day meeting with the Monetary Policy Committee (MPC). The increase comes several months after the last increase, which was a 0.50% hike made in January this year.
Bad news for those in debt
The increase will have an upward impact on loans (personal loans, vehicle finance and mortgages) linked to the repo rate’s activity. First National Bank (FNB) was one of the first banks to announce that it will lift its prime lending rate to 9.25% from 9% following the decision earlier today by the SARB Monetary Policy Committee to increase its lending rate by 0.25%. The new rate will take effect from 18 July 2014 and will be implemented on all prime-linked loans.
“Consumers are already heeding calls to reduce borrowing and we are seeing declining consumer credit demand. In many ways we are also seeing far deeper changes taking place; the former environment of low rates and high credit use is being replaced by much greater caution,” says FNB CEO Jacques Celliers.
“Consumers already struggling with debt need to prepare themselves for greater challenges as the interest rate hike will have a severe impact on their financial situation,” says Ian Wason CEO of South Africa’s largest debt counsellor, DebtBusters.
“The problem lies within the fact that fewer consumers are activity paying back their unsecured debt, as the percentage of accounts reported as ‘current’ on the unsecured credit book dropped by 2.35 percentage points to 60.74%.
“People already struggling to keep up to date with their current debt repayments will have even less disposable income. The 0.5% repo rate increase in January 2014, will be already starting to effect home loan defaults, as the amount of mortgage accounts reported as ‘current’ decreased by 0.32 percentage points according to the CCMR.”
Increased difficulty in getting credit
With the increase in the repo rate, lenders are becoming more cautious as they take on the likelihood of consumers defaulting on their loans as they start to struggle with their repayments. According to DebtBusters, there has been a decline in short-term lending over the last 12 months, as the CCMR revealed a decrease of approximately R300 million year-on-year (Q1 ended March 2013 to Q1 ended March 2014) on the short-term credit gross debtors book.
Wason states, “This suggests that payday lenders have pulled back massively on granting loans in the last year and consumers are beginning to realise that access to credit has become more difficult. Consumers no longer have the option of quick and easy short-term loans to bail them out when they need extra money.”
The recent announcement from the NCR regarding Wonga’s affordability tests will accelerate this trend. Wason goes on to say, “Credit providers have become more stringent with granting credit due to stricter affordability assessment criteria laid out in the Credit Amnesty Regulation. Consumers are now seeking the help of debt counsellors and debt management companies to alleviate their debt problems. Given the latest credit trends and as economic pressures tighten, debt counsellors will find themselves assisting more and more consumers into the next quarter and beyond. We have seen a significant increase in the number of new clients who have applied for debt review in the last quarter. Applications for debt counselling are ever-increasing.”
The recent announcement from the NCR regarding Wonga’s affordability tests will accelerate this trend. Wason goes on to say, “Credit providers have become more stringent with granting credit due to stricter affordability assessment criteria laid out in the Credit Amnesty Regulation. Consumers are now seeking the help of debt counsellors and debt management companies to alleviate their debt problems. Given the latest credit trends and as economic pressures tighten, debt counsellors will find themselves assisting more and more consumers into the next quarter and beyond. We have seen a significant increase in the number of new clients who have applied for debt review in the last quarter. Applications for debt counselling are ever-increasing.”
According to the NCR, the total number of applications for debt counselling up to March 2014 amounted to 517,008, drastically increasing from 484,690 in December 2014. In June 2014 the numbers rose again to a total of 550,169.