Prior to the emergence of the pandemic in South Africa, consumer credit had been experiencing healthy growth, particularly in gross lending terms, as an increasing number of consumers turned to credit in the form of card lending and personal loans due to the rising cost of living and already high unemployment. This supported ongoing demand for the largest category of card lending, while consumers increasingly relied on microcredit, overdrafts and personal loans as consumers struggled to make their wages cover their monthly outgoings.
Auto lending, the largest category in terms of outstanding balance within consumer credit behind car lending, also witnessed one of the fastest current value declines in terms of gross lending and one of the highest growth rates in terms of outstanding balance in 2020. Consumers who had already established car loans, like many others with ongoing lending agreements, struggled to make repayments or chose to take payment holidays, while the unstable environment combined with the pandemic still circulating weakened consumer confidence and did not make for a positive scenario in terms of price-sensitive South Africans wanting to commit to high monthly repayment loans.
South Africa’s five largest banks, FirstRand Bank, Standard Bank of South Africa, Nedbank, Absa Group and Capitec dominate consumer credit, and play a key role in consumer lending as they offer a wide range of products that cover all types of loans that cater to different income segments, such as Capitec, which focuses on lower-income South Africans, by offering affordable fees. However, the emergence of the pandemic forced many mainstream financial service providers to offer payment holidays as consumers struggled to make repayments, while also restricting the offer of new credit until a customer’s credentials had been thoroughly assessed to see if they were likely to default considering the unstable environment.
The impact of the pandemic is likely to affect consumer credit for a number of years, in terms of lenders’ willingness to consider certain consumers depending on their suitability and financial circumstances, and South Africans’ concerns about over-indebtedness, particularly impacting loans for non-essential goods.
Improved economic conditions in terms of exports and a more positive outlook for the country as international visitors are allowed to enter South Africa to boost tourism over the forecast period, (depending on the threat level of the virus), could strengthen consumer sentiment and increase their willingness to apply for credit. Card lending for instance, which recorded the strongest decline in gross lending in 2020, is predicted to see improved demand from 2021, as consumers look to use credit cards or store cards to purchase certain goods, particularly if they find attractive offers through e-commerce.
A further move towards digitalisation is likely to influence the way consumers acquire loans. This will be supported by the commitment of operators such as Mastercard, which have been supported by fintech innovation across the country.
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This report originates from Passport, our Consumer Credit research and analysis database.
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