The Altron FinTech Short-term Credit Impact (AFSCI) index shows some short-term lending recovery in the fourth quarter of 2021, despite the impacts of Covid-19; however, National Creditor Regulator (NCR) data for the first quarter of 2022 is expected to show a decline.
The AFSCI index, which tracks the impact of short-term credit extension on the South African economy on a quarterly basis, shows a 2.6% increase from the third to the fourth quarters of 2021 and a 3% rise year-on-year.
The NCR data for the first quarter of 2022 is expected to decline 5.2%, although this is largely seasonal and would mean that new credit extension was still 4.4% higher in the first quarter of this year than it was a year ago, said economist Keith Lockwood, who compiled the AFSCI index.
He said that, while Omicron resulted in a surge of new infections during the period under review, improved immunity owing to both vaccination and prior infection led to significantly lower hospitalisations and deaths, with the government maintaining South Africa at adjusted alert Level 1 until April 4, when the National State of Disaster was finally lifted.
“As a result, the normalisation of economic activity continued. This is reflected in the performance of real gross domestic product (GDP) and real household consumption expenditure, both of which experienced consistently positive growth from the second quarter of 2021 to the first quarter of this year. Despite this, both indicators were only able to return to their pre-Covid-19 levels in the first quarter of 2022,” Lockwood commented.
Despite the uptick, total employment was still 9% lower than before the pandemic started and the number of unemployed people was 21% higher.
Compared with the pre-Covid-19 period, there was a 70% increase in the number of unpaid people working in households, a 10% decrease in the number of people employed by others and a 12% decrease in the number of employers.
“On the positive side, the average number of employees per employer has been trending higher. After falling from 18.3 people in 2017 to just 11.6 people at the height of the lockdown in the second quarter of 2020, this increased to 15.7 people in the first quarter of 2022.”
However, there were still significantly fewer people earning regular incomes in the first quarter of 2022 than before the pandemic started, which has implications for the number of people that are deemed to be creditworthy.
“Nevertheless, the NCR data indicates that there was a slight decrease in the rate of rejections on credit applications from 67% in the third quarter of 2021 to 66% in the fourth quarter, which suggests that there may have been a slight improvement in the financial position of some individuals and households towards the end of 2021 as the normalisation of economic activity continued,” he explained.
Lockwood also points out that the NCR recognises and collects data on different types of credit, including mortgages (bonds), secured credit, credit facilities, unsecured credit, short-term credit and developmental credit.
“As at the end of the fourth quarter of 2021, the value of credit still on the books of registered credit providers amounted to R2.11-trillion, up 5.1% on a year earlier. Over 52% of this consisted of mortgages, with more than 22% being secured credit. Short-term credit only accounted for 0.1% of the total.”
During the year to the end of the fourth quarter of 2021, the total value of consumer credit on the books of credit providers increased by almost R102-billion, supported almost entirely by the growth in mortgages, which accounted for 89% of the increase, secured credit 14% and credit facilities 4%, he pointed out.
Small increases in developmental credit and short-term credit made marginally positive contributions to the growth, but unsecured credit contracted.
The index shows that people with monthly incomes of R15 000 and above accessed 88% of the total consumer credit advanced in the fourth quarter of 2021, while those with monthly incomes of less than R10 000 received only 7% of the total.
“By contrast, people earning more than R15 000 a month received 43% of the total short-term credit advanced, while those earning less than R10 000 a month accessed 41%.”
People with monthly incomes of R5 501 to R7 500 accessed just 2% of total credit and 12% of short-term credit, while those earning R3 500 or less accounted for 6% of short-term credit and only 1% of total credit, indicating that the most vulnerable in South Africa’s economy continue to struggle to access most formal credit markets.