Following a concerning spike in unsecured lending throughout 2012, it seems as though a downturn in growth is finally in sight. This is according to statistics released by the National Credit Regulator (NCR) in December 2012 for the third quarter of the year.
According to the Consumer Credit Market and Credit Bureau Monitor reports, the value of unsecured credit increased only marginally from R25.80 billion for June 2012 to R25.97 billion for September 2012, a quarter-on-quarter increase of only 0.67%. This increase shows a significant decline from the quarter-on-quarter increase of 17.55% for the quarter ended June 2012. Furthermore, the total number of unsecured loans granted fell by 2.39% in the third quarter when compared with the second quarter of 2012.
The reports also highlighted the fact that the number of credit agreements granted to individuals with an income of R10 000 or less has also decreased. For the quarter ended September 2012, 59.31% of credit agreements were granted to individuals with a monthly income of R10 000 or under. This is the lowest this percentage has been in three years, perhaps indicating a slight recovery in the financial position of this group of individuals who are often financially vulnerable to economic change.
Unfortunately, the number of impaired credit records continues to rise and increased by 28 000 to 9.25 million for the quarter ended September 2012. Despite this increase, the percentage of consumers with an impaired credit record remained constant at 47% when compared with the previous quarter. This is the highest this percentage has been in three years and indicates that South African consumers are still struggling to meet their credit repayments.
Last year the surge in unsecured lending was of great concern to those in the credit industry and lead to the NCR conducting research into the key factors for consideration regarding sustainability linked to the growth in unsecured lending. The spike also caught the attention of finance minister Pravin Gordhan who requested that banks lend responsibly. The alarm was caused in response to the fact that unsecured credit had increased by 49.4% year-on-year and amounted to R131.3 billion in the second quarter of 2012 – a dramatic increase from R61.1 billion in the second quarter of 2010.
With the growth in unsecured lending finally slowing down it may be an indication that consumers are no longer able to maintain the credit and spending spree of the past year. High debt levels mean that consumers are financially constrained and unable to continue spending or increasing their debt repayments. In addition, weak consumer confidence may make consumers more cautious about overspending in the upcoming months.
According to the Bureau for Economic Research’s (BER’s) consumer confidence index for the fourth quarter of 2012 there has been a sharp decline in consumer confidence which may point towards slower sales volumes in 2013. While these statistics may indicate consumers will become more financially cautious in the future, the number of impaired credit records may also be an indication that consumers are so deeply indebted as a result of last year’s credit splurge that they simply cannot afford to meet their current repayments or take on any additional debt commitments.