Trouble for South Africans earning less than R10,000 a month

Capitec chief executive officer Gerrie Fourie says that South African consumers are under pressure, and the bank has had to tighten up its lending conditions to ensure that it keeps a lid on credit impairments and its loan book remains healthy.

The bank currently services 21.1 million active clients in the country – more than a third of the total population – giving it a unique perspective on the hardships faced by everyday South Africans.

Fourie said that higher interest rates have put many households under pressure, but the real strain is on those earning less than R10,000 a month.

This is because a lot of the trouble hitting South Africans at the moment emanates from high food inflation and higher petrol and fuel costs, impacting more than just the households with loans.

Of Capitec’s 21.1 million clients, only 1.3 million have taken credit with the bank, Fourie said.

The bank’s net credit impairment charge grew by 62% to R4.8 billion, with the higher charge mainly due to an increase in the migration of balances into stages 2 and 3 of the retail loan book.

Stage 3 loans are loans that are technically impaired and comprise R21 billion of the bank’s R100 billion loan book. Stage 2 loans are loans that show an increased risk of impairment, but interest payments are still counted in the books. Just under R14 billion of loans are at stage 2.

Fourie noted that despite this increased pressure, mitigating measures put in place by the bank have reduced the number of clients moving into stage 2 and stage 3.

Closing the taps

Citing wider lending data covering all the banks, Fourie noted that South Africans are over-indebted, but levels have returned to pre-Covid times. This is true for debt levels and the cost of credit, which is only slightly higher than in August 2019, having come down from sharp spikes during Covid.

However, there are clear signs of strain.

The biggest red flag is the number of new clients defaulting on loan payments. First-time defaulters for the whole of South Africa have increased from 1.5% to 2.6%, he said. The number of new applications for loans is also a warning sign.

These new loan applications have jumped from around 11 million to 16 million. Because of this, the approval rate for these loans has dropped from 40% to 30% in the industry.

Fourie said that Capitec’s loan approval rate is still 40%, but the uptake rate is only 20%. He explained that if clients seek a loan of R100,000, and the bank offers R50,000, around half the time the client opts out.

This means that South Africans are shopping around for money and are definitely looking for easy credit. Capitec’s data shows that clients are increasingly turning to store cards and microlenders to get it.

Fourie said that the bank has responded to this by tightening its lending criteria and has changed over 420 aspects of its credit business.

Another measure has been actively monitoring credit facilities and decreasing limits where strain is evident (a R100,000 facility dropped to R80,000, for example).

These changes have led to a decrease in term loan sales of 11%, while access facility limit sales decreased by 62%. Capited said around 7.5% of credit clients are showing strain over a three-month period after taking up a loan.

About 2 percentage points of this number default on their loans but fully recover.

Fourie said that the group is seeing most of the strain at the lower-income bracket, with those earning less than R10,000 a month largely being subject to the tighter lending conditions.

However, the CEO added that it wasn’t just the lower-end of the income brackets that are in trouble.

He said that top-end earners are also taking strain, largely because of the culture of living beyond one’s means and trying to “keep up with the Joneses”, incurring unnecessary debts.

On the business side, he said that it’s mostly small businesses – of two or three people – that are under the most strain.

More positively, he said that businesses in South Africa are showing a lot of resilience and are in a healthier position than the prevailing economic conditions would imply.

Read: Capitec joins the chorus of warnings for consumers in South Africa