Homeowners who accumulated excess cash and paid down their existing mortgage debt during the Covid-19 lockdown, a period when interest rates were slashed to historical lows, are now drawing the prepayments to keep bread on the table and install solar, FNB says.
The lender said on Friday that prepayments and extra payments towards mortgages have slowed "considerably".
"Homeowners are drawing down on savings from excess payments made when interest rates were low to meet their daily needs or even to fund big-ticket items such as solar installations. This props up outstanding mortgage debt — the opposite effect to what was witnessed during the pandemic," FNB said in a research note.
The bank said data indicates demand and supply for consumption credit, especially credit cards, remains strong and anecdotal evidence suggests real wage growth might be turning positive for the first time since the second half of 2021.
"If sustained, these could provide marginal support to shopping activity in the near term. However, these are counteracted by our expectation of a further tightening in lending standards, as the cumulative impact of past interest rate decisions filters through, as well as depressed consumer sentiment. As such, we maintain our view of subdued growth in household consumption expenditure for the remainder of the year."
The state of consumers has been laid bare in the latest results of SA’s largest banks.
Capitec reported bad debts of R4.7bn in the six months to end-August, a surge of 62% from the comparative period.
This is in line with impairments reported by other banks. Standard Bank’s credit impairment charges in the six months to June leapt 42% to R8.4bn. Standard Bank also reported that its credit loss ratio, the loan losses relative to its total loans, rose to 97 basis points (bps), near the top of its target range of 70bps to 100bps.
In its interim results, Absa reported a 60% surge in total credit impairments to R8.3bn, while Nedbank’s impairment charge increased 57% to R5.3bn.
Income erosion
Most of the impairments emanate from home loans and personal loans as high interest rates and inflation eat into disposable incomes.
The Reserve Bank, in its financial stability review in May, said "household finances remain under severe pressure due to rising interest rates, load-shedding, high unemployment, weak real income growth and high inflation".
The central bank said households are tapping into their savings buffers, "further weakening the sector’s ability to withstand future shocks".
Results from a Nedbank study found 62% of South Africans’ spending equals or exceeds their income.
Nearly 80% of the 1,500 people surveyed said their expenses increased in the past 12 months and two-thirds are unable to pay all of their bills on time, with 33% saying they have been late with their home loan repayment in the past year.
With lenders tightening their lending criteria in response to the surge in bad debts, consumers are "overwhelmingly" turning to credit to make ends meet, using formal credit, such as credit cards, and payday and personal loans, as well as informal debt, including borrowing from loved ones and loan sharks, the study shows.
Nedbank’s study looked at people who are working either full time or part time, or who are self-employed in metropolitan and urban areas.
Financial pressure
The group managing executive of retail and business banking at Nedbank, Ciko Thomas, said South Africans are under immense financial pressure.
"The sustained interest rate hikes, substantial fuel price increases and soaring inflation have resulted in significant financial pressure on the average SA consumer," Thomas said.
"As a financial service provider, we have felt the pressure of consumer indebtedness through rising impairments throughout the 2023 financial period. Even more concerning is the fact that 67% of South Africans have noted unmanageable debt as a factor severely impacting their mental health."
Expenditure on solar, as noted by FNB, is expected to continue as Eskom struggles to keep the lights on.
In the February budget, the National Treasury announced solar tax breaks valid for a year from March 1 2023. Households can claim back 25% of the value of new solar panels, up to a maximum of R15,000.
Data from mortgage originator BetterBond shows the value of solar panel imports into SA reached a record high of R3.6bn in the first quarter of 2023.
Security barrier manufacturer Trellidor said in September that load-shedding and water shortages have forced consumers to reprioritise the allocation of disposable income to alternative power and emergency water solutions over investments in security.
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