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Unsecured debt on the rise

By Staff Writer
By Ashleigh Brown, journalist, Justmoney
The latest Consumer Credit Market Report by the National Credit Regulator (NCR) shows that consumers still have an appetite for unsecured and short term loans. Unsecured credit increased from R18.82 billion for March 2014 to R19.32 billion for June 2014, a quarter-on-quarter increase of 2.64%. Short-term credit increased from R1.23 billion for the quarter ended March 2014 to R1.29 billion for the quarter ended June 2014, an increase of 4.75%.
More consumers are also struggling to repay their debt. The number of consumers with impaired records increased by 343,000 from 9.60 million to 9.95 million. As a percentage of the total number of credit-active consumers at 45%, this reflects an increase of 0.8% quarter-on-quarter and a decrease of 3% year-on-year. 
Despite this, consumers are still opening more accounts. The number of accounts increased from 77.18 million in the previous quarter to 79.42 million. The number of impaired accounts increased from 19.27 million to 21.28 million when compared to the previous quarter, an increase of 2.01 million quarter-on-quarter and 2.41 million year-on-year. 
The appetite for loans and the increase in impaired credit records is still a worrying trend as it follows Bridge Capital’s business rescue proceedings and African Bank’s curatorship under the South African Reserve Bank (SARB). 
However, there was also positive news contained in the report, with more than 90% of people paying off their mortgages. 
The NCR report looks at the second quarter of the year (beginning of April 2014 to the end of June 2014). It details quarterly data of the South African consumer credit market in terms of the National Credit Act (NCA), which came into effect in June 2006.
The NCR highlighted that unsecured lending had grown remarkably since June 2013. This was also reflected in Intelligent Debt Management’s (IDM’s) Debtometer a report which the debt management company issues every quarter. “Unsecured debt has grown from 36% to 50% of our book, which mimics the growth in unsecured lending,” said Ian Wason, CEO of IDM Group. Wason added that unsecured lenders’ debt grew at 172% per annum. 
Meanwhile, the debt for secured lending (loans tied to assets such as cars) saw a slight increase too. “The secured debtor’s book, which is dominated by vehicle finance, increased from R331.72 billion for March 2014 to R340.36 billion for June 2014, a quarter-on-quarter increase of 2.60%,” said the report.The short-term credit debtor’s book decreased only slightly from R707.34 million for the quarter ended March 2014 to R704.99 million for the quarter ended June 2014, a decrease of 0.33%. 
Consumers are taking out shorter-term, higher-interest loans, signalling the pressure South Africans are under to make ends meet pointed out Wason. “Payday loans have grown at over 1,000% per annum, which indicates the South African consumer is under increasing pressure to borrow for basic necessities such as food and clothing. Our clients’ original debt repayment to net income ratio increased from 67% to 104%, which reflects the increasing strain the South African consumer is under,” he said. 
The total number of credit granted overall increased by 1.5% from the previous quarter (the beginning of January to the end of March). But since June 2013 it has decreased by 2.21%. This trend of granting fewer loans could be maintained. Wason believes that African Bank being placed under curatorship and the subsequent effects on other credit providers will likely result in less credit being granted.
The NCR report also showed how the amount of credit granted was distributed around the country. The significant portion of the credit granted went to consumers in the Gauteng province (R51.60 billion i.e. 48.14%). The Western Cape and Kwazulu Natal accounted for R15.24 billion (14.21%) and 13.15 billion (12.27%) respectively. The remaining provinces constituted R27.20 billion (25.37%). 
The report highlighted that more than 90% of the number of agreements were paid by consumers in the greater than R15 000 income category. The value of mortgages granted increased by 7.6% from R30.84 billion to R33.18 billion. 
South Africa’s total outstanding mortgage book was R834.4bn in June, which is 4.4% higher than in the quarter ended June last year. The report further showed that a total of 90.62% of the mortgages repayments were up-to date as at June 2014. Nomsa Motshegare, CEO of the NCR, commended the latest trends in consumers seeking assets building credit. She also encouraged consumers to know their credit status, to live within their means and to use credit responsibly.
For the full report, click here

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