Lockdown's left SA drowning in debt – and it’s about to get worse

Business Insider SA

Debt in South Africa
(Getty Images)
  • South Africa's coronavirus-induced lockdown crippled jobs and salaries, with consumers looking to loans to weather the storm.
  • But reprieves like payment holidays have ended and interest rates are increasing.
  • The start of 2022 has seen a surge in debt counselling inquiries, with one firm reporting an increase of 32% in January compared to the same period last year.
  • Lower take-home pay, a higher debt service burden, and unsustainably high levels of unsecured debt have created the perfect storm.
  • Especially in the face of rising interest rates and growing inflation.
  • For more stories go to

Unemployment and stagnating salaries are symptoms of the coronavirus-induced lockdown, leading many South Africans to use loans to weather the storm. Payment holidays have ended, and low interest rates will soon be something of the past.

South African consumers are sinking deeper into debt. The overall debt to annual net income ratioacross all income bands reached its highest level ever at the end of 2021, according to the latest DebtBusters report.

This report, released on Tuesday to launch National Debt Awareness Month, profiles consumers who've applied for debt counselling in the final quarter of 2021 and compares it with data gathered over the past five years.

There has been a significant increase in the demand for debt counselling at the end of 2021 compared to the year prior, with inquiries up 18%. The start of 2022 saw this increase surge by more than 32% compared to the same period last year. These inquiries come from consumers who are drowning in debt.

Average take-home pay has dropped by around a quarter since 2016, when taking into account slightly lower nominal income and cumulative inflation of 24% over the six-year period. That's led more people to take out personal loans which is especially true during the pandemic.

Debt exposure has worsened significantly for consumers earning more than R10,000 a month.

In 2019, consumers applying for counselling with DebtBusters, who were earning between R10,000 and R20,000, had a debt to annual net income ratio of 114%. This has since climbed to more than 123%. For those earning more than R20,000, the increase has been even steeper, from 134% in 2019 to 146% now.

The problem for most lies in unsecured debt in the form of credit cards, overdraft facilities, personal loans, retail cards, and store cards. This accounted for 47% of the debt mix in 2019 and now accounts for 57%.

"Unsecured debt levels were on average 22% higher than in 2016," noted the DebtBuster's report.

"For consumers taking home R20,000 or more per month, unsecured debt levels were 43% higher. This indicates that these consumers are using unsecured credit to supplement the erosion in their real income."

And while payment holidays offered a brief reprieve to consumers during the height of the pandemic, these have since expired. Some consumers also used low interest rates to purchase assets like cars and homes, but will feel the pinch as interest rates rise into 2022.

"We certainly do foresee more applications for debt counselling as interest rates increase," Benay Sager, head of DebtBusters, told Business Insider South Africa.

Sager added that the combination of lower take-home pay, a higher debt service burden, signalled by record debt-to-income ratios, and unsustainably high levels of unsecured debt created a perfect storm in the face of rising interest rates and growing inflation.

"Average interest rates for bonds and vehicle finance started to decrease from the second quarter in 2020, thanks to the Reserve Bank's multiple rate reductions," said Sager.

"Consumers with assets benefitted from this as well as the bank payment holidays introduced to mitigate the impact of the Covid-19 pandemic. Bank payment holidays ended a while ago; now as the repo rate starts to tick up, the benefits of low interest rates will disappear, and consumers should do everything possible to reduce the cost of credit and protect their assets."

(Compiled by Luke Daniel)

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