SA’s biggest four banks have about R98bn home loans in stage three, the last stage before a loan is deemed to be nonperforming, reflecting the effect of high interest rates on consumers, according to data from the country’s largest lender, Standard Bank.
Standard Bank said the surge in interest rates since November 2021 has put pressure on consumers, especially in repaying variable instalment loans such as mortgages and vehicle asset finance. The prime lending rate has risen 475 basis points (bps) since November 2021 to 11.75%, which is 200bps higher than a few months before the Covid-19 crisis hit.
Thabani Ndwandwe, chief risk officer at Standard Bank SA, said the surge in interest rates, while necessary to curb inflation, resulted in a hefty 42% increase in monthly repayments for a 20-year home loan compared with November 2021.
“We also know in 2021 and 2022 ... we saw an increase in first-time home buyers taking advantage of the low interest rate who would not have experienced interest rate fluctuations of this nature.
“The rise in interest rates, combined with these other factors, has meant that many customers have fallen short in their repayments over the last two years,” said Ndwandwe.
“This is seen in the latest financial results where the bank’s stage three [closest representation of nonperforming loans] is at 34% to 49.5% for home loans. There is currently about R98bn of home loans that are in stage three across the big four banks, which is about 8.3% of loans in stage three.”
Ndwandwe said more than 20% of customers were going into debt review as they felt the financial strain and looked for ways to protect their assets.
“We have also seen increased activity from debt counsellors, encouraging customers to enter debt review. The debt portfolio at the industry level now sits at over R80bn, which is a substantial figure with long-term consequences,” said Ndwandwe.
“While our data has been showing that over 80% of our customers continue to pay while in debt review, the long-term effect of customers being in debt review and being locked out of the market [after] this cycle is yet to be understood.”
Gerrie Fourie, CEO of Capitec, SA’s largest bank by customer numbers, cautioned last month against the trend of debt counsellors placing consumers under debt review when their financial position did not warrant it. He said that while debt review had a place, there was a worrying trend of the mechanism being used against the interests of clients.
Debt review is meant to help customers who are struggling to meet their debt obligations. A debt counsellor approaches creditors and makes arrangements on a client’s behalf, reducing payments to a manageable monthly amount.
The process typically spans three to five years, during which time a consumer cannot access the credit market. Banks and other lenders cannot take legal debt enforcement action against a consumer who is under debt counselling.
Debt assistance
Ndwandwe said consumers are encouraged to make use of the debt relief service options that their lenders have made available, so they may receive timely debt assistance that suits their needs.
“Consumers must consider using budgeting tools as part of their financial planning, prioritise essential spend, live within their means, and consider downsizing cars and homes to free up cash flow towards their essentials and debt repayments,” said Ndwandwe.
“We are of the view that interest rates will start to decrease in the second half of the year. However, there remains significant uncertainty due to elections (globally and in SA), which could further delay interest rates.
“Given this uncertainty, consumers should continue to save and invest where possible and focus on paying off unsecured debt where feasible to mitigate possible future financial risk.”
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