The latest Altron FinTech Short-term Credit Impact (AFSCI) index reveals an expected 7.8% quarter-on-quarter decline in net short-term credit extension for the second quarter of 2022.

The Altron FinTech index, based on previous data, indicated a 5.2% decrease in net credit extension between the fourth quarter of 2021 and the first quarter of 2022; however, National Credit Regulator (NCR) data showed that the actual decline was larger at 8.3%.

“As you know, consumer credit markets do not operate in isolation from the rest of the economy. Given the lag in the release of credit data by the NCR, it is worth remembering what was happening in the economy between January 2022 and June 2022 – the period that is the focus of the new credit data covered by this edition of the index,” says economist Keith Lockwood, who compiled the AFSCI index.

While government lifted the National State of Disaster in April, after the Covid-19 surges eased, the economy continued to be battered by several developments that have prevented it from gaining growth momentum.

This included Russia’s invasion of Ukraine, which has caused disruption to global energy and food supplies resulting in a rapid increase in inflationary pressures around the world, which triggered monetary authorities around the world to raise policy rates significantly - a trend followed by the South African Reserve Bank.

Further, State-owned power utility Eskom continued to implement load-shedding – which had reached over 100 days by September – amid maintenance and breakdowns of generation units.

“As a result, while the country’s gross domestic product (GDP) in the second quarter of 2022 was marginally – 0.8% – larger than a year earlier, the rate of growth was lower than the increase in the population over the same period. This led to a further decrease in real GDP per capita, which is now almost 7% lower than it was at the start of 2015,” he says.

South Africa’s stagnating economy has served to further exacerbate poverty and inequality, as the poorest 10% of households were trying to survive on an average of R920 a month in the second quarter, while the wealthiest 10% spent an average of over R93 000 a month.

The pressures on the financial position of most households also continue to be reflected in the high rates of rejection of credit applications, he says, citing the rejection of almost two out of every three applications for credit during the first quarter, compared with less than one in two in early 2018.

“This points to low levels of credit worthiness among most credit applicants and is reflected in the relatively low rates of growth in consumer credit extension, and in the favouring of secured credit, such as mortgages and asset finance over other forms of credit,” Lockwood comments.

As at the end of the first quarter of 2022, the value of credit still on the books of registered credit providers amounted to R2.16-trillion, an increase of 6.2% year-on-year and 2.3% (R49-billion) higher than the previous quarter.

According to the AFSCI index, 52% of this comprised mortgages, more than 22% was secured credit and almost 10% was unsecured credit. However, short-term credit only accounted for 0.1% of the total.

Lockwood explains that short-term credit is relatively more accessible to lower income groups than other forms of credit, owing to, in part, short-term lenders operating within local communities and being able to use their personal knowledge of applicants to assess the risk of default in ways that are different to the more rigid risk assessment criteria applied by commercial banks.

He further points out that people with monthly incomes of R15 000 and above accessed 88% of the total consumer credit advanced in the first quarter, while those with monthly incomes of less than R10 000 only received 7% of the total credit extended.

“By contrast, when it comes to short-term credit, people earning more than R15 000 a month received 45% of the short-term credit advanced. Combined, those earning less than R10 000 a month accessed 38% and those with monthly incomes of R10 000 to R15 000 received the remaining 16% of short-term credit,” Lockwood comments.

People with monthly incomes of R5 501 to R7 500 accessed only 2% of total credit, but 12% of short-term credit and those with incomes R3 500 or less received 6% of short-term credit but only 1% of total credit.

He explains that the AFSCI index is indexed to 100 in the first quarter of 2015, reaching a peak of 178 in the fourth quarter of 2015, and has trended lower ever since.

At the height of the Covid-19 lockdown, it reached a low of 41, but recovered slightly in the quarters that followed.

“Short-term credit extension made 20% less of an impact on the economy in the first quarter of 2022 than it did at the start of 2015 but 92% more of an impact than at the height of the lockdown. Altron FinTech data suggests that, unfortunately, the impact of this form of credit will decline further in the second quarter of 2022.”

Altron FinTech MD Johan Gellatly says that the quarterly research continues to be an important indicator of the health of not only South Africa’s credit market, but also of the broader economy.

“What this edition certainly highlights is that consumers, particularly low income earners, are feeling the pinch of increasing inflation, and soaring food and fuel prices. In the year to August 2022, household transport costs increased by almost 21%, while food was close to 12% more expensive.”

“We need to bear this in mind, particularly in regard to our customers, such as suppliers of credit who use our products to service consumers, by ensuring that our solutions ensure optimal efficiency in their businesses. We also pride ourselves on continuously researching, developing and using technology that affords our customers the opportunity to focus on their primary business, which is particularly important in challenging times such as these.”