The emergence of the pandemic in South Africa and the subsequent lockdown period introduced by the government in an attempt to control the spread of the virus, exacerbated already rising unemployment levels witnessed in 2019, and dramatically reduced consumers’ disposable incomes. This not only left them struggling to pay for essential goods and services, but also significantly impacted their ability to repay loan agreements which had a notable effect on consumer lending, particularly consumer credit.
The initial hard lockdown spanned 26 March to 30 April. During this time borders were closed to tourists but not for the distribution of goods, while inter-provincial travel was banned, and domestic and international tourist flights ceased.
The pandemic resulted in consumer spending reaching its lowest point in South Africa due to rising unemployment, decreasing disposable incomes and weak consumer sentiment. An increasing number of consumers reached their credit card limits during the lockdown, while those who were less impacted by the crisis took an extremely cautious view in terms of both acquiring credit and their expenditure, particularly on non-essential goods such as durables or apparel.
With many mainstream financial service providers tightening their lending criteria as a result of the pandemic, alternative financial service providers continued to gain notable share in 2020, as South Africans who were struggling to make ends meet looked to microcredit and microlenders for short-term loans. These types of lenders tend to offer a more simplified operating system which makes it easier for consumers to access loans, particularly those with a poor credit rating.
While the pandemic impacted some consumers’ ability to make their monthly mortgage payments, with mortgages/housing also recording a rise in the percentage of non-performing loans, the overall decline in terms of gross lending in 2020 was much lower compared to consumer credit. Nevertheless, many South African banks offered relief in the form of payment holidays on their mortgages, while others considered the longer-term impact once the period of pandemic-debt relief measures ended rather than be faced with property evictions.
Consumer lending is set to continue to struggle heading into 2021, primarily driven by the larger category of consumer credit, as consumers’ concerns relating to over-indebtedness and lenders’ caution and their application of more restrictive lending criteria continuing to drive down gross lending (in value terms at constant 2020 prices). Nevertheless, those consumers still struggling financially to even afford the most basic goods including groceries will be forced to apply for microcredit to get by.
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