Altron FinTech’s latest Short-term Credit Impact (AFSCI) Index for the third quarter of 2022 shows a 0.9% quarter-on-quarter increase in net short-term credit extension.

The index tracks the impact of short-term credit extension on the South African economy on a quarterly basis.

“Based on National Credit Regulator (NCR) data for the second quarter of 2022, there was a significant increase of almost 10% in the AFSCI Index when compared with the first quarter of the year. However, relative to a year earlier, the index is down just over 1%,” says independent economist Keith Lockwood.

Data from trends in short-term credit extension that are now supported by data from Altron FinTech, providing a useful indicator of likely trends in the third quarter of 2022, points to a further quarter-on-quarter increase in net short-term credit extension of 0.9% in the third quarter of 2022.

Another key finding is that, while short-term credit made 12% less of an impact on the economy in the second quarter of 2022 than it did at the start of 2015 – the baseline year of the index – it is now making 111% more of an impact than it did at the height of the Covid-19 lockdowns in the second quarter of 2020.

“The South African economy was impacted by a range of developments in the second and third quarters of 2022. Russia’s invasion of Ukraine further disrupted global supply chains – already impacted by Chinese Covid-19-related lockdowns – causing food and energy commodity prices to spike,” says Lockwood.

“This contributed to rapidly rising inflationary pressures and monetary tightening both globally and in South Africa, which caused the post-Covid-19 recovery to lose momentum. Many countries, particularly those where household debt to disposable income levels are already at historically high levels, are experiencing a cost-of-living crisis and there are concerns that a number of advanced economies will experience recessions.”

While South Africa was spared some of these impacts owing to its comparatively lower household debt levels, household spending remains under pressure because of persistently high unemployment levels, rising inflation, higher debt servicing costs and extended declines in real per capita incomes.

“The domestic economy has also faced additional headwinds from increased industrial action – particularly at Transnet – and from increased disruptions to electricity supply from Eskom.”

With a large number of South African households generating income below the poverty line, with average monthly household expenditure ranging from as little as R920 a month to R7 450 a month in Expenditure Deciles 1 to 5, and given other expenditure priorities, the capacity of these households to take on, and service, additional debt is limited.

“This reality is reflected in two ways. Firstly, registered credit providers continue to reject two-thirds of all credit applications; and secondly, the amount of credit that lower income households are able to access is limited.

“An extended expansion of the amount of credit that lower income households can access will therefore depend largely on sustained growth in real per capita incomes, which requires substantially higher rates of real gross domestic product (GDP), accompanied by increased labour absorption of lower skilled workers,” he continues.

He explains that lower income households access a higher proportion of short-term credit than other forms of credit simply as short-term credit is relatively more accessible to lower income groups than other forms of credit, owing, in part, to short-term lenders operating within local communities 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.

“As a consequence of their ability to access short-term credit, consumers were able to purchase goods and services to the value of R1.86-billion in the second quarter of 2022. These purchases in turn generated economy-wide sales of almost R6.6-billion.”

The AFSCI Index also revealed that, by the end of the second quarter of 2022, the value of credit still on the books of registered credit providers amounted to R2.19-trillion, representing an increase of 6.4% compared with the prior year, and 1.1 %, or R24-billion, higher than the previous quarter.

“Over 52% of this comprised mortgages, 22% was secured credit [and] over 13% was credit facilities. Developmental and short-term credit only accounted for 2.6% and 0.1% respectively.”

Further, during the year to the second quarter of 2022, the total value on consumer credit on the books of credit providers increased by R10.5-billion, with 43% of this increase owing to an increase in unsecured credit, with a further 33% from credit facilities and 19% from secured credit.

Mortgages accounted for 9% of the growth but short-term credit made no discernible impact and developmental credit made a negative contribution of 3%.

Between the start of 2015 and the second quarter of 2022, the average value of all short-term loans increased by 48%, compared with increases in consumer prices of 36% and nominal/current priced GDP per capita of 40% over the same period.