
07 Nov Debt Trends in South Africa 2024
Economically, 2024 has been a challenging year. Nearly half of the global population entered an election year, inflation remains high, unemployment is at a 2-year peak, and more people have fallen into default. On a more hopeful note, the market reacted positively to the formation of the Government of National Unity, as seen in the Rand’s stabilisation and the repo rate’s decline.
Have these happenings affected how South African lenders and consumers behave with money? In their overview of South Africa’s second-quarter consumer credit trends, TransUnion reported that more people with bad credit scores, ‘subprime debtors,’ have been approved for loans and that more people, especially young people, are taking out credit than ever.
Understanding how our fellow South Africans have used credit is an excellent benchmark against which to hold ourselves. This post aims to provide an overview of consumer debt in South Africa: what’s going well, what’s not, and why. True North Debt will discuss the amount of debt the average South African has, the lines of credit we use the most, and how lenders and credit bureaus feel about it.
South African Debt and Credit Trends as of June 2024
Despite South Africa’s macroeconomic and labour force challenges, its credit appetite sharply risen, particularly in the retail sector, with retail sales rising 4.1% in June 2024 YoY (year-over-year: from one year to the same period in the previous year). Gen Z (born 1995–2010) and Millenials (born 1980–1994) dominate our credit market, accounting for 62% of new account openings (originations).
In summary:
- Personal loan originations have gone up.
- The new vehicle finance market is declining.
- More people are buying houses for the first time.
- Store card (revolving and instalment) originations have shot up.
- 195,000 credit cards have been opened from January to June.
All information is sourced from the Q2 TransUnion report from June this year.
Credit Card Trends
Credit cards are a sort of revolving credit that has gained popularity since the beginning of this year, primarily because of Gen Z’s origination rates (up 22.7% YoY). This is because e-commerce services, like Takealot and Amazon, and on-demand services, like Uber and Netflix, are growing in popularity as the generation comes of working age, fueling the credit card market. Lenders are happy to ride this wave, as illustrated by the average new account credit limit increasing by 5.9% YoY.
More people are using credit cards overall: outstanding and average balances grew 10.3% and 6.9% YoY, respectively.
People with lower than prime credit scores are using their credit cards more, too–and defaulting more. There was a 50-point increase in the balance-level delinquency rate (percentage of the total outstanding balances overdue in the last 3 months) because of shock-induced defaults (when people don’t pay because of sudden economic changes).
The average balance per credit card account stands at R24,323, up almost 7% from June last year.
Personal Loan Trends
Personal loan originations have surged by 16.7% YoY, with non-bank organisations making up 80% of new account openings. Non-banks granted ninety percent of loans below R5000. Banks only offer personal loans to people with pristine credit records, while non-bank organisations usually offer low-value, short-term loans.
Lenders are examining risk profiles more closely. In the second quarter of last year, 77% of consumers who successfully applied opened personal loans under R5,000 had a bad credit record, which declined by 3% YoY.
Demand for personal loans will remain strong. In the TransUnion Consumer Pulse Survey, 33% of respondents said they would take out a personal loan in the next year–a higher rate than any other credit loan.
The average personal loan balance per account is R 31,299, down 2% YoY.
Vehicle Finance Trends
People are buying fewer new cars, with new passenger vehicle sales for May and June plummeting by 11.7% and 9%, respectively. South Africans prefer to buy second-hand vehicles or vehicles in cash because of the volatile economy’s interest rates.
This trend may change in subsequent quarters as Gen Z comes of age. They are historically more affluent than their predecessors and have generated an 18.1% YoY growth in sales volume.
South Africans aren’t fans of having vehicle finances credit lines open. Existing borrowers have opted to pay off their auto loans, making account origination activity’s lacklustre performance a concern for the vehicle finance industry.
The average South African owes R 242,565 on their vehicle.
Home Loan Trends
Even as interest rates remain high, home loan account originations have continued to grow, rising 16.2% YoY. The average new loan amount increased by 1.7% to R940,675.
Lenders are less picky about who they grant housing finance to, with the subprime lending ratio (amount of mortgages given to people with bad credit records) heightening by 4% over the last year. Banks are more confident in the property market and have optimised their risk strategies to accommodate more lenders.
Interestingly, people with super prime credit records are taking out fewer mortgages, but property market experts predict that affluent nationals returning from immigration (reverse emigrants) could fill this gap.
Most homeowners owe R660,249 on their bond.
Clothing Account Trends
Clothing account originations have skyrocketed by 12.2% YoY, with Gen Z constituting almost a third of all new accounts. This is because clothing accounts are the gateway to the credit system for many South Africans, evidenced by two-thirds of clothing account owners being subprime borrowers.
Unfortunately, serious-level delinquencies, like defaults, have shot up in Q2 of 2024. Lenders have noted this and decreased opening account line limits by 13.8%. TransUnion predicts that clothing account originations will continue to soar because of South Africa’s growing dependency on credit.
Most South Africans owe R 2,277 on their clothing account.
Future Debt Trends in South Africa
The future of our economy is complex and uncertain. Global happenings influence the South African economy. With Donald Trump having just won the US presidential candidacy, we might see record tariffs on South African exports to the US and exacerbated geopolitical tensions between certain Middle Eastern and Eastern European countries, further complicating the world’s economic outlook.
There is hope for South Africa’s domestic economy. The repo rate is expected to fall a further .25 points, so long as inflation remains below SARB’s upper limits and the Rand maintains its stability.
If you’re struggling to meet your debt obligations, contact True North Debt. We can negotiate lower interest rates and repayments on your behalf through a debt help system called debt review. Once you apply, you’re automatically granted legal protection from creditors and personalised budgeting and finance assistance. Debt help is here, make use of it.