Altron index shows short-term credit improvement

10th December 2021

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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There was an increase in the extension of short-term credit in South Africa during the second quarter of 2021, the latest Altron Fintech Short-Term Credit Impact (AFSCI) Index shows.

The second-quarter AFSCI, which tracks the economic impact of short-term lending in the country, shows an 8.6% year-on-year increase and a quarter-on-quarter increase of 2.7%.

This resulted in an estimated year-on-year economywide increase in sales of R459-million, the creation of an additional 795 jobs and R56-million more in taxes collected for government, and a quarter-on-quarter economywide increase in sales of R153-million, 265 additional jobs and R19-million more in taxes collected for government.

This is an improvement on the first-quarter report, released in September, which showed a decline of 12.3% between the first quarter of 2020 and first quarter of 2021 that resulted in an estimated year-on-year economywide decline in sales of R790-million, 1 400 fewer jobs supported and R96-million less in taxes collected.

Altron Fintech MD Johan Gellatly reiterates that credit remains an important catalyst for economic growth.

“An increase in credit extension injects money that was previously out of circulation back into the economy, and thereby generates a stream of economic activity and incomes. If we want to grow the economy and create jobs, it is clear that we need to make responsible short-term credit more accessible, particularly to lower-income households,” he says.

There could be significant benefit to the economy if the value of short-term credit advanced, which is defined as loans with values not exceeding R8 000 that are repayable within six months, is raised by R1-billion, adds independent economic consultant and Gordon Institute of Business Science adjunct faculty member Keith Lockwood, who developed the Index in partnership with Altron.

Additional Taxes

“Sales throughout the economy would increase by R2.9-billion, employment supported would rise by close to 50% to over 15 000 jobs and our government could expect to collect about R340-million in additional taxes,” he highlights.

According to the index, total new credit extension by all forms of consumer credit plunged 57% under the hard Covid-19-related lockdown during the second quarter of 2020.

“Since then, the value of credit advanced recovered strongly, with all forms of credit, except developmental and unsecured credit, rising to above their pre-Covid-19 levels by the second quarter of 2021,” Lockwood comments.

During the second quarter under review, the total credit advanced was up 16%, largely owing to the 45% increase in the value of mortgages, while the value of short-term credit advanced was 4% higher than its pre-Covid-19 levels.

However, the index highlights that, during the second quarter, 64% of all consumer credit applications were rejected, compared with 62% in the first quarter of 2021, reflecting the continued under-pressure financial position of the average consumer.

Despite some recovery as economic activity normalised in recent quarters, per capita gross domestic product (GDP) was 7% lower and total employment was 3% lower in the second quarter of 2021 than in 2015.

In the second quarter of 2020, when the lockdown was at its most restrictive, two-thirds of all credit applications were rejected.

The report shows, however, that credit providers had started to tighten up on credit extension before the Covid-19 pandemic emerged, noting that during the first quarter of 2018, only 49% of credit applications were rejected but by the first quarter of 2020, this had increased to 61%.

In the year to the end of the second quarter of 2021, the value of the short-term debtors book increased by R155-million to R1.95-billion.

“Close to a third of this increase occurred in the latest quarter and was owing to the fact that total new advances of R2.21-billion exceeded loan repayments and write-offs of R2.16-billion by almost R52-million in the second quarter of 2021,” Lockwood notes.

The index also found that those with a monthly income of R15 000 and above accessed 89% of the total consumer credit advanced during the quarter under review, while those with monthly incomes of less than R10 000 received 4% of the credit extended.

However, people earning more than R15 000 a month received 42% of the short-term credit advanced, a similar share to those with incomes of less than R10 000 a month, while those earning between R10 000 and R15 000 a month accounted for the remaining 16% of short-term credit.

“After deteriorating significantly during the early stages of the pandemic, the age analysis of the consolidated debtors’ book of short-term credit providers has largely returned to pre-Covid-19 levels,” Lockwood says.

Loan Repayments

During the second quarter of 2021, 70% of borrowers were “current” in respect of their loan repayments, 14% were between 30 and 60 days in arrears and 17% were more than 60 days in arrears.

Since the second quarter of 2020, there has also been an 83% increase in the number of new short-term loans advanced.

“Whereas loans with a term of up to one month made up 74% of the value of new short-term loans at the start of 2015, by the second quarter, this had dropped to 35%. “Over the same period, the share of loans with a term of two to three months and four to six months increased from 7% to 13% and from 19% to 51% respectively.”

Between the first quarter of 2020 and the second quarter of 2021, the aggregate value of loans with a term of up to one month declined by 28%, while the value of loans with a term of two to three months increased by 25% and those with a term of four to six months rose by 42%.

“Between the start of 2015 and the second quarter of 2021, the average value of short-term loans advanced increased by 48%, compared with increases in consumer prices of 34% and gross domestic product per capita of 31%, over the same period,” he comments.

“The fact that the interest rate that can be charged by short-term credit providers is capped and there has been no adjustment to fees that can be charged since 2015 may have contributed to the relatively sharper rise in the average loan value,” Lockwood says.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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