Resilient South Africans focus on asset-based loans, optimistic about income

27 Sep 2023

The latest statistics from BankservAfrica and Transunion show that South Africans are earning more than they were a year ago, and are taking on more credit to match.

The average take-home pay tracked in the BankservAfrica Take-home Pay Index (BTPI) rose again in August 2023, with average nominal pay for August up 5.8% year 0n year, moving to R15,578.

Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements notes that the average August take-home pay was also higher than July’s R15,525.

Shergeran says nominal salaries improved in July and August as some industries became progressively more resilient to the effects of load shedding.

Providing a snapshot of operating conditions in the private sector, the S&P Global South Africa Purchasing Managers’ Index registered a reading above the 50.0 neutral mark in August for the first time in six months, signalling somewhat better conditions in the private sector.

If sustained, this could be a supportive factor for employment and remuneration prospects.

“While the somewhat higher levels of real take-home pay in the past two months are heartening, it has partly been driven by a notable moderation in consumer inflation,” says independent economist Elize Kruger.

Headline consumer inflation moderated from 7.1% y/y in March to 4.7% y/y in July and ticked up marginally to 4.8% in August, reducing the extent of the erosion of purchasing power that households have had to deal with.

Though inflation has been back into the South African Reserve Bank’s 3-6% target band for three consecutive months, an unwelcome U-turn is on the cards.

Fuel costs to drive inflation up

With estimates of petrol and diesel price increases at around R1/l and R1.50/l in early October, the cumulative increases over the most recent three months would be about R3/l for petrol and a notable R5/l for diesel.

According to Kruger, these increases will no doubt push headline inflation into a range of 5.5% to 5.9% for the next few months. Still, consumer inflation is forecast to average 6.0% in 2023 compared with a 13-year high of 6.9% in 2022, and should then moderate further to average around 5.2% in 2024.

While the interest rate cycle has probably reached its plateau, the South African Reserve Bank is aware of the upside inflation risks posed by the renewed rand depreciation and higher fuel prices, among others.

“This will result in interest rates remaining elevated. With household finances already under severe pressure, this scenario remains negative for consumer spending and confidence levels,” says Kruger.

The TransUnion Q2 2023 South Africa Industry Insights Report, which tracks consumer credit trends across key credit products, shows that 72% of South Africans expect an increase in household income in the next 12 months.

“The South African consumer credit market has grown compared to a year ago due to the significant number of new accounts originated, with lender appetite having widened over recent quarters,” says Weihan Sun, director of financial services research and consulting for TransUnion in South Africa.

“Consumer credit scores remained relatively consistent compared to a year ago, which reflects the continued resilience of South Africa’s credit-active market.”

More home loans, car finance hits the brakes

Originations – a measure of both consumer demand and lender willingness to advance credit – for home loans grew in volume and value during the second quarter of this year.

Average new loan amounts were 16.9% higher over the same period.

Outstanding balances increased by 8.1% year on year. However, there were instances of consumers with the capacity to do so making additional payments towards their principal home loan amounts, in response to the continued interest rate hikes.

Account-level balances saw more consumers fall into delinquency, which is unsurprising after the multiple interest rate hikes that have eroded consumers’ liquidity over the past few years.

Although the current high interest rate environment has put pressure on many existing homeowners, demand for homes remained resilient as consumers continued to take advantage of the “buyer’s market” created by the lower-than-inflation home price growth rate of 3.9% year on year.

TransUnion’s recent First-Time Homebuyer’s Study revealed that 72% of home loan originations were made by first-time buyers over the past two years.

In contrast to home loans, vehicle finance origination volumes decreased by 4.5% year on year. However, delinquencies decreased by 160 basis points, reflecting South Africans’ dependence on private transport solutions as they maintained focus on paying their vehicle loans.

“In previous TransUnion studies into payment hierarchies that identified which credit products consumers prioritise and pay first when they’re under pressure, we found that consumers place the highest priority on paying their secured lending obligations, and this trend continues to hold true,” Sun says. DM

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Fuel costs to drive inflation up

More home loans, car finance hits the brakes