The South African Reserve Bank (SARB) increased interest rates in the country by 75 basis points on Thursday, the biggest increase from a single monetary policy committee (MPC) meeting since 2002. Analysts are predicting more monster interest rate hikes later this year, especially since one of the MPC members already wanted a 100 basis points hike this week.
Ironically, the same week that the Reserve Bank shocked many consumers with the latest hike, four of South Africa's credit bureaus and debt counselling firms published research showing how financially squeezed consumers already were.
Credit bureau TransUnion released the results of its second quarter survey hours before Reserve Bank Governor Lesetja Kganyago took the podium. The TransUnion Consumer Pulse Study explores how households' finances have changed on a quarterly basis and what changes they expect in the future.
This was despite a third of respondents reporting that their household income had improved in the first quarter of 2022. They expected the rising inflation and continued interest rate hikes to erode those income gains.
Another 26% of respondents said their household income had decreased in the past three months, while the remaining 43% experienced no change.
First-time defaults on the rise
Another credit bureau, Experian, reported that first-time defaults between January and March 2022 climbed to R18.11 billion. The Experian South Africa's Consumer Default Index (CDI) deteriorated for the first time in 18 months. This was after the country's cumulative 50 basis point interest rate hike in January and March. It was before the May and July 2022 interest rate hikes which have added another 125 basis points to the cost of credit.
The rate at which people defaulted on their loans for the first time increased to 3.68 in March 2022, from 3.49 in the last quarter of 2021. The composite index runs from zero to seven. The higher it goes, the more people who'd never defaulted before started struggling to repay their debt in that quarter.
First-time default rates were the highest in retail loans, followed by personal loans, credit cards and vehicle asset loans.
Young singles setting up their lives and young unskilled adults unable to afford anything more than their basic needs, even with more than one household income, struggled the most in the first quarter.
Affluent consumers not immune to rising defaults
Even the most affluent consumer group, the upper crust of South African society with large exposure to high-value home loans and vehicle loan balances greater than R450 000, started struggling. This group's default index deteriorated by 12.4% in the last quarter of 2021 to 2.53.
"The impact of the rising cost of living and interest rate increases [is] starting to impact consumers in this segment," noted Experian.
But even with other income groups whose default index scores improved, Experian pointed out that the long period of low interest rates and limited travel and entertainment spending opportunities helped some of them honour their debt commitments more regularly than in the past. But this picture has changed.
"We expect the CDI trend to continue deteriorating as interest rate increases take effect and advise consumers to manage their budgets carefully through this challenging time," said Experian Africa's head of commercial strategy and innovation, Jaco van Jaarsveldt.
Debt counselling firm, DebtSafe, also released results of its own survey, which polled 1 447 debt-active consumers in June. Most were single, unemployed people primarily located in Gauteng, KwaZulu-Natal and the Western Cape. Some 56% of those with debt – mostly retail store accounts – were in arrears. Most of their limited income went towards living costs, mainly food and travel, for 72% of the respondents.
They had taken out debt to deal with "tough economic times" and supplement their costly living expenses. Putting money aside for rainy days was not even an option for 80% of them as they had no money left after paying for living expenses and servicing debt.