Africa-Press – South-Africa. South Africans are becoming increasingly dependent on credit to make it through the month, with January being a particularly daunting period following the festive season and what feels like an even longer wait to payday.
For parents, January is even more stressful with all the back-to-school planning and purchases that need to take place.
According to the head of Transactional Banking at Absa Everyday Banking, Nick Nkosi, these financial stresses are apparent, with the bank already recording a steep increase in credit applications and extensions in 2024.
“In 2023, [Absa] saw the highest application rate for credit ever, and this continued into January 2024. We see the trend moving in an upward trajectory,” he said.
Nkosi highlighted several factors putting immense pressure on South African consumers in 2024 – including stubborn interest rates, inflation, and the general cost of living.
Speaking to eNCA, Money Coach and facilitator at 1Life’s Truth About Money, Hayley Parry noted that many parents are financially stressed right now.
“So back-to-school necessities are not an unexpected expense, but on the back of the immense financial pressures many South Africans have been under for the past two years, it comes as no surprise that parents are struggling,” she said.
A survey conducted by 1Life showed close to 90% of consumers would have to cut back on other expenses to cover these costs, and the majority of consumers end up crediting their January salaries to cover these purchases.
“This is a double whammy for parents who have these additional school expenses coupled with depleted lines of credit or no savings – creating a perfect storm for financial stress,” said Parry.
These financial concerns were also evident as Absa joined the list of South African financial service providers flagging a high credit loss ratio.
In a voluntary trading update for the year ending 31 December 2023, Absa said expects high-single-digit revenue growth in 2023, primarily driven by net interest income, showing balance sheet growth and higher policy rates.
“Given significantly higher policy rates, our credit loss ratio is expected to exceed our through-the-cycle target range of 75 to 100 basis points,” the group said.
Nedbank also flagged South Africa’s reliance on credit, noting that its credit impairments rose by 57% in its interim results for the six months ending 30 June 2023. Additionally, credit card growth grew slightly from 9% in October to 9.1% in November.
“Despite this, household credit demand is waning as falling asset prices, higher interest rates, and relatively poor economic prospects erode household confidence, incomes, and balance sheets,” Nedbank said.
“At the same time, commercial banks are more cautious in extending credit given these vulnerabilities and rising defaults, reinforcing the cyclical downturn in credit growth.”
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