FNB, which has the largest private banking client base in SA, says this segment has not escaped the harsh realities of the country’s economy, with an increasing number of clients entering credit review.
CEO Harry Kellan said FNB was seeing strain in mortgages and personal loans, even in the high income segment.
“We are also seeing more private customers taking debt counselling than what we have seen in prior periods. So, they are not immune to feeling the pressure of inflation and high interest rates,” he said. “Some may have overindebted themselves, especially of secured assets like home assets.”
Business Day reported in May that individuals earning more than R35,000 a month were bearing the brunt of diminishing disposable incomes, with many drowning in debt.
This is revealed in the first-quarter DebtBusters debt index, which shows that a combination of high interest rates and inflation, as well as stagnant salaries due to lack of economic growth, are eroding consumers’ disposable income.
Arrangements
Debt review is meant to help customers struggling to meet their debt obligations. A debt counsellor approaches creditors and makes payment arrangements on a client’s behalf, reducing payments to a manageable monthly amount.
The process typically spans a period of three to five years, during which a consumer cannot access the credit market. Banks and other lenders cannot take legal debt enforcement actions against a consumer who is under debt counselling.
FNB in its consumer confidence index, conducted alongside the Bureau of Economic Research, released on Tuesday found the confidence levels of middle-income households (earning between R5,000 and R20,000 a month) improved to -4 during the third quarter.
FNB chief economist Mamello Matikinca-Ngwenya said: “A confluence of positive developments has bolstered the confidence levels of SA’s more affluent consumers over the last six months. These include the formation of a government of national unity, the absence of load-shedding, a stronger rand exchange rate, substantial fuel price declines, a deceleration in inflation and expectations of interest rate cuts in coming months.
“Moreover, the implementation of the two-pot retirement system on 1 September now allows consumers access to a portion of their retirement savings, which will no doubt hearten households experiencing financial distress.”
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 had 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 200 bps higher than a few months before the Covid-19 crisis hit.
The Reserve Bank is due to make its latest call on interest rates on Thursday with analysts expecting the first cut since the hiking cycle began.
During the Covid-19 pandemic the repo rate was cut to a record low 3.5%.
The repo rate hikes since then took the rate to 8.25%.
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