Tag: debt

What South Africans owe on their credit cards

Source: Supermarket & Retailer

The findings of TransUnion’s Q2 2021 South Africa Industry Insights Report covers a period where unemployment was still rising, but prior to July’s civil unrest and peak in the third wave of Covid-19 cases.

The report shows that a number of the trends, seen immediately after the outbreak of Covid-19 more than a year ago, have continued to advance with some notable exceptions, especially when looking at delinquencies.

Understanding the delinquency picture

Delinquency rates during the pandemic have been influenced by a number of important factors, the credit specialist said. Deferrals, payment holidays and other accommodations by lenders have helped borrowers in need. A decline in new borrowing in the past year since the onset of the pandemic has also shifted the overall ratio of good versus bad debt within lenders’ portfolios.

While a general increase in overall debt has been apparent, the total number of new loans and accounts has decreased as a result of the decline in originations. This means that while the numerator in the delinquency equation (i.e., existing accounts with delinquencies) is rising, the denominator is not growing at the same pace, said TransUnion.

Add in other drivers for which accounts financially distressed consumers choose to repay – e.g., prioritising product utility such as credit card functionality for online payments or car loan payments to ensure you can avoid public transport- and it’s clear that there are often multiple drivers for changes in delinquency levels, the group said.

Typically, delinquencies have often followed wider macroeconomic trends such as GDP growth and changes in unemployment.

In the latest Q2 2021 figures, although there were improvements in most of the major consumer credit categories, unsecured personal loans recorded a significant increase in balance-level delinquencies – bank personal loans were up 260 bps YoY and non-bank personal loans 700 bps.

A higher delinquency rate for non-bank personal loan providers is to be expected as they have historically targeted higher-risk consumers who are more likely to default and will be less resilient to sustained financial hardships, such as those caused by the pandemic.

“Finding and funding resilient consumers becomes even more crucial during challenging economic periods when looking to maintain a healthy portfolio delinquency ratio.

“The key is to fuel new credit growth by finding good consumers, who are likely to perform within lenders’ target thresholds and in return can help maintain a healthy bad-to-good ratio for longer-term lending growth,” said Carmen Williams, director of research and consulting at TransUnion South Africa.

Credit demand in a post-pandemic world

Throughout the pandemic, TransUnion’s data has shown reduced appetite from both consumers (demand) and lenders (supply) for new account openings (as measured by originations), and this continued in Q2 2021.

“However, with the world economy slowly starting to reopen and vaccination programs gaining pace, the future shape of the consumer credit market will depend on a number of important variables,” it said.

Historically, macroeconomic conditions have been an important factor in the pace of credit growth. Equally, consumer sentiment also has a significant bearing. Although the latest IIR data is for Q2 2021, TransUnion also conducted its regular Consumer Pulse Study in August 2021, which was post the civil unrest and the initial peak of wave three Covid-19 infections seen in early July.

This study showed a number of important trends relevant to potential future demand and direction of the market in South Africa, the credit specialist said.

The number of South African consumers anticipating in August that they would apply for new credit or refinance existing credit within the next year was just under a third (31%). Personal loans (43%) and new credit card (35%) applications continued to be top of the list, said TransUnion.

“There continues to be significant turbulence in the South African consumer credit market, with a number of potential new trends emerging, especially in the delinquencies space. Wider economic and political news continues to impact consumer sentiment and outlook, and these will shape the recovery as it continues to emerge,” said Williams.

“Lenders need to constantly monitor for shifts in consumer behaviours and adapt to the changing demand and future preferences of consumers if they are to succeed. There is no doubt the road to recovery will be a bumpy one, but by being informed, lenders will have the best possible chance to compete and succeed.”

Credit card is the only credit product to show high levels of continued origination decline since the beginning of the pandemic (down 23% YoY in Q2 2020, 63.2% YoY in Q3 2020 and 48.6% YoY in Q4 2020 and 42.7% YoY in Q1 2021). This is largely due to lenders implementing tightened credit-granting policies in the midst of economic uncertainty, said the credit specialist.

Lenders remain focused on extending credit to existing customers rather than onboarding new borrowers. Average balances increased by 17.6% and total credit limits increased substantially by 15.2% while new loan amounts increased by only 2.2%.

Outstanding balances for credit cards (up 10.6% YoY) have been driven by consumers’ need to balance household budgets, maintain liquidity, and finance subsistence purchases, especially where incomes have been negatively impacted. However, increases weren’t evenly distributed, and a clear generational divide has emerged.

Younger consumers increased their outstanding credit card balances more than older generations. The Q2 2021 YoY change for Millennials (born 1980-1994) was 9%, compared to 6% for Gen X (1965-1979) and only 3% for Baby Boomers (born 1946-1964).

Younger generations tend to transact more online, and the utility a credit card provides is fundamental to this activity. Credit card account-level delinquencies were down 50 basis points (bps) from their peak in Q2 2020, and in Q2 2021 stood at 12.3%, and were at the same level as Q2 2019.

This improvement provides further evidence that credit cardholders are protective of and value the revolving functionality that this product holds, TransUnion said.

Eskom records net loss of R18.9bn

By Gaye Davis for EWN

Eskom has recorded a net loss after tax of close to R19- billion.

CEO André de Ruyter released the annual results for the year ending March 2021 virtually on Tuesday afternoon.

De Ruyter has also outlined the power utility’s highs and lows.

He said Eskom’s debt mountain continued to weigh on the group’s performance: “We regret that we have to report a net after tax loss of R18.9-billion, this is largely attributable to the fact that we continue to have an unsustainable debt burden, which caused us to pay in the past financial year, net debt service costs of R31.5-billion.”

De Ruyter said the Covid-19 pandemic had a significant impact, especially in the first half of the financial year, with overall sales down 6.7%.

“Headcount was reduced by 4.5% and as a consequence, we were able to contain our employee costs – we are now sitting at a staff complement of 42,749, which is down from about 44,772 at the end of the previous financial year.”

Eskom’s gross debt now stands at R401.8 billion. Its gearing ratio improved to 67%, from 71%.

Debt servicing costs of R31.5 billion contributed to the net loss, De Ruyter explained.

 

By Londiwe Buthelezi for News24

Consumers are facing heavy debt pressure as the impact of the pandemic continues to hit home.

DebtBusters says the number of people approaching it with debt counselling inquiries rose 18% in the second quarter of 2021, compared to the same time last year when SA was under the harshest lockdown level.

DebtBusters said while more people might be back at work now, many consumers are seeking help because of the after-effects of the lockdowns. Reduced incomes because of stop-and-go economic activities in the past year meant that many people’s ability to borrow has narrowed.

“It is clear that the debt situation of SA consumers has further deteriorated recently. In the absence of a meaningful increase in real income growth, SA consumers continue to supplement their income with more unsecured credit,” wrote DebtBusters.

But the company also attributes this pressure on consumers to the long-standing decline in real incomes in SA.

According to DebtBusters’ calculations, while nominal incomes in the country have increased 3% compared to 2016 levels, the cumulative inflation growth of 24% over the same period means that real incomes have shrunk by 21% over those five years.
With real incomes moving the opposite direction of living expenses, more people have been borrowing to supplement their incomes just to get by.

Unsecured debt, which includes credit cards, overdrafts and personal loans – debt usually used for consumption – has increased by 32% for the average client who approached DebtBusters since the second quarter of 2016. Top earners’ unsecured debt levels are now 49% higher than five years ago.

As the debt mounts, more consumers consistently need to spend around 60% of their take-home pay to service their debt, at least until they turn to debt counsellors for help.

DebtBusters said in the second quarter, the debt-to-income ratio for all income bands (among their clients) increased to its highest levels to date. This is the percentage of people’s gross monthly income that goes towards paying their monthly debt obligations.

Among their clients, the debt-to-income ratio sat at the average of 122% across the income bands. But for those taking home R20 000 or more per month, it increased to 152%. In the second quarter of 2016, these consumers’ debt-to-income ratio stood at 126%.

“With all this said, there is some positive news. The number of clients completing debt counselling successfully has increased by sevenfold over the last five years,” wrote DebtBusters.

 

More South Africans buying food on credit

By Neil Roets for Mail & Guardian

On 1 June, StatsSA announced that the country’s unemployment rate has continued to worsen, hitting the 32.6% mark for the first time since the study was launched in 2008. Among the youth, this figure is far worse, hovering around 46%. Brought on by the ravages of the pandemic where millions have lost their jobs or experienced pay cuts, the latest stats point to the ongoing crisis that is affecting us on micro and macro levels. Most notably, it’s the middle-class that has been the most affected, with a forecast from Transaction Capital stating that 34% are expected to fall out of this demographic band because of the previously employed having to switch to informal employment or take on short-term contracts.

With fewer consumers reporting earning wages of R22 000+ a month and more now receiving incomes of less than R8000 a month this trend is likely to continue. Among lower-income groups, those who earn the National Minimum Wage (R3 643.92) continue to experience extreme hardship; the cost of a Basic Nutritional Food Basket for a family of four costs R2919.47 leaving exactly R724.45 to cover everything else, putting them at significant risk of turning to debt to survive. Where can they go for help?

In response to this deteriorating personal finance landscape, government is considering introducing a Basic Income Grant. Aimed at those who are unemployed and aged between 19 and 59 its introduction follows the end of the Covid-19 Social Relief for Distress Grant of R350. Despite giving some short-term relief, the amount is far below the poverty line, which sits at about R561 a month. With a shortfall of a few hundred rands, many will have no other option but to seek support.

According to a recent Debt Rescue survey, this is most often in the form of help from family and friends (30%), savings (36%), selling assets (10%) or turning to expensive credit providers. To put the latter in perspective, PayCurve recently published its own survey, indicating that 80% of all South Africans make use of unsecured credit or payday loans. Both come at extraordinary costs given the interest incurred on the principal loan amount, especially if it comes from a loan shark that can charge between 50% and 112% in interest. This is completely unsustainable and puts South Africans in a dangerous place where debt is used to pay for debt — it is a deeply concerning and profoundly challenging situation.

Through whatever means additional funds are being procured, it has to cover a lot of expenses. Given the average Household Food Basket is R4 137.11 (Household Affordability Index) how are costs for electricity, water, transport, school fees and medical expenses covered, many of which have increased recently? Eskom’s 15% tariff hike is a case in point, as is the rising fuel price that has had a significant knock-on effect on everything that needs to be transported. We also saw South Africa’s inflation rate increase in March 2021 to 3.2%, and is something that will likely continue in the coming months, further affecting pricing and the end-user.

Credit providers are often the only “way out”. This is evidenced by the fact that, according to our April consumer data, 42% said that they had opened a store card to buy groceries. This is alarming and completely unsustainable; food is the one thing that should only be paid for in cash — sadly, it is not a new trend. In 2018 Debt Rescue reported on the same consumer behaviour as many turned to retailers to buy food on credit. Even though it was claimed that the funds were only granted to those who could afford it and would use it responsibly, the fact is many consumers are still using credit to buy their cornflakes and pay it off later.

Buying food on credit is symptomatic of a bigger problem. Consumers who have experienced a change in their financial standing, either through retrenchments or pay cuts, are in trouble and taking on more expensive debt is only going to make it worse. Often the only way out is to engage a debt counsellor who can work with them to get out of a devastating debt spiral.

The problems experienced by middle-class South Africans are evident in the responses to our April survey: nearly half (48%) buy meat and vegetables on deals, 18% have switched retailers and have opted for cheaper store brands (14%). A full 82% are also bargain-hunting. This is not surprising given that 89% said the cost of food and goods is significantly higher than 12 months ago.

This is simply untenable. Consumers who have been affected financially by the pandemic are battling and cannot make ends meet. With so many millions joining the ranks of the unemployed, there are only two options: credit or government grants. Both present a set of concerns and challenges, although the latter means more pressure on treasury’s coffers, which are already under siege from competing demands. Becoming reliant on government is not what we want or need. We need to find ways of re-stimulating the economy where small businesses are better enabled to hire, or hire back employees. According to the National Development Plan, small to medium sized enterprises (SMEs) are expected to account for 90% of all jobs by 2030. If this is the case, we have to find ways to help these businesses get back on their feet and grow so that they are in a position to employ again.

Depressingly, however, the end is not in sight, and we will likely see further bloodshed in the market. With one in 12 jobs lost, it is estimated that employment rates could take until 2025 to revert to pre-pandemic levels. What will happen between then and now is deeply worrying, not least as unscrupulous loan sharks swoop in on the most desperate in our society, offering financial “help” that will further bankrupt them and generations to come.

 

It is estimated that the South African National Roads Agency Limited (Sanral) has spent approximately R5.3-billion trying to recover e-tolls from motorists who are unwilling and unlikely to pay.

This is according to an analysis from the Organisation Undoing Tax Abuse (OUTA).

  • Sanral has spent almost half the amount of money as it was trying to collect
  • According to its financials, it spent R508 million on collecting e-tolls, which brought in over R660 million in revenue
  • OUTA has estimated that it has cost the roads agency around R5.3 billion to operate the e-toll system
  • Sanral’s financial statements show that it only hoped to collect around R10.5 billion from e-tolls since 2014
  • Sanral didn’t recognise 50% or more of the e-toll bills it sent out every year as potential revenue
  • Sanral effectively wrote off over R17 billion in e-toll revenue
  • Of the amounts owing to Sanral for e-tolls, the roads agency only recognised around R9.8 billion in its most recent financial results as debt owed by motorists
  • It is not known exactly how much Sanral pays for its contract with the Electronic Toll Collections (ETC) company, nor what its other administration costs for the e-toll system is

Eskom reduces debt by one fifth in a year

By Gaye Davis for EWN

Eskom’s mountain of debt has been reduced by R83-billion.

Public Enterprises Minister Pravin Gordhan said that this meant that Eskom’s debt now stood at R401-billion, down from R484-billion.

Gordhan was delivering his budget vote speech in Parliament on Tuesday.

The minister said that managing Eskom’s debt was a key priority for the government as it tried to steer the power utility onto a sustainable path.

He used his budget speech to deliver some good news on Eskom’s debt woes.

“The entity is continuing to implement its cost-reduction initiative, with a saving of R13.5 billion achieved in the 2020/2021 financial year.

“Most notably was the R83 billion reduction of debt in the 20/21 financial year from R484 billion to R401 billion due to the repayment of the maturing debt and changes in the exchange rate. Those are significant numbers, chairperson.”

Gordhan said, however, that Eskom’s consumer debt continued to rise, and that special attention must be paid to municipalities, which collectively owed Eskom billions in unpaid electricity bills.

 

Oracle cuts Eskom off

Source: MyBroadband

Oracle has cut off essential technical services to Eskom following a payment dispute, but the impact on the power producer’s operations has been minimal.

The payment dispute arose after Eskom allegedly added modules and users to their Oracle software services without paying the required license fees.

An audit by Oracle revealed abuse by Eskom and the software giant initially claimed Eskom underpaid by R7.3 billion.

Following discussions between the parties the amount was lowered to R380 million. Eskom, however, said it only owes Oracle R166 million.

Oracle threatened to cut off essential technical services to the power utility unless it settles the outstanding R380 million.

Eskom responded by launching an urgent court application to compel Oracle to continue providing technical support amidst the payment spat.

The Johannesburg High Court dismissed Eskom’s application, and shortly afterwards Oracle cut its essential technical services to Eskom.

In its court application Eskom warned of “catastrophic consequences” if Oracle withdrew its support services.

Eskom said it could affect its ability to supply electricity to South Africa which will have a crippling effect on the economy.

To date the impact of Oracle’s decision to discontinue its support services has, however, been minimal.

Eskom spokesperson Sikonathi Mantshantsha confirmed that Oracle has cut off technical support services after their legal victory.

“Oracle’s technical support services have not been available to Eskom over the past week,” Mantshantsha told Bruce Whitfield on The Money Show.

Eskom has now implemented contingency plans which it developed in preparation for this scenario.

Mantshantsha said at this stage there has not be a “very big impact” on Eskom’s operations.

This is partly because Oracle’s support was a supplement to Eskom’s internal teams who have been working with the software for more than 20 years.

“We have activated those teams and they are holding the fort at the moment,” said Mantshantsha.

This raises the question whether the Oracle technical support services were necessary in the first place.

Mantshantsha said it is undoubtedly necessary to have the technical expertise of companies like Oracle to resolve problems with their software.

“We will continue to require such services and as such Eskom has embarked on an urgent procurement process to find the technical skills to replace Oracle,” he said.

Oracle’s decision to terminate its technical support services adds risk to electricity supply in South Africa, but Mantshantsha said they do not rely entirely on the experts from Oracle.

“There is a risk which Eskom has put mitigation measures in for…but we are able to operate without their support for now,” he said.

Eskom dismissed concerns that other providers will be hesitant to work with Eskom following this debacle.

“Any supplier which enters into business with Eskom can expect that Eskom will always honour its contractual obligations,” said Mantshantsha.

Oracle has been mum on the matter, only saying “Eskom should pay the pending dues for the Oracle software that they use”.

 

Cell C posts R5.5-billion loss

By Sibongile Khumalo for News24

Cell C says its latest set of results showed that its turnaround strategy was having a “positive impact in stabilising the business”, although some key performance industry were still down.

CEO Douglas Stevenson says investors were looking forward to a proposed recapitalisation deal aimed at driving revenue growth and profitability.

Net loss narrowed to R5.5 billion for the 2020 financial year, compared to compared to R7.6 billion in the first half of the year.
Cell C, which has battled a severe liquidity crunch, narrowed its net loss to R5.5 billion for the 2020 financial year, compared to R7.6 billion seen in the first half, with the company describing its performance as reflective of a “business in transit”.

The telecommunications operator, which in 2020 defaulted on an interest payment on a $184 million loan, said its latest set of results showed that its turnaround strategy was having a “positive impact in stabilising the business”, although some key performance industry were still down.

Its gross margin declined by 7% and cost optimisation resulted in overall direct expenses being 9% lower at R7 billion, from R7.7 billion in 2019, the annual financial statements released on Tuesday showed. A once-off expenditure of R5.7 billion was incurred due to recapitalisation and the costs associated with network restoration, which the company attributed to its net loss before tax of R5.5 billion.

“Our turnaround strategy has improved our financial performance as a mobile network operator and Cell C is operationally more efficient,” said CEO Douglas Stevenson.

“Over the next three years we will fully transition to roam on partner networks – all with the aim of providing a quality network, innovative value offerings for our customers and ensuring a profitable and sustainable business.”

‘A business in transition’

Despite a challenging period, Cell C managed to lift total subscriber numbers to over 12.5 million, up from 11.7 million in the first half of the year.

In January 2020, Blue Label Telecoms, which is a 45% shareholders in Cell C, announced that the network provider had defaulted on interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank, China Development Bank Corporation, the Development Bank of Southern Africa and the Industrial and Commercial Bank of China, which were due in January 2020.

“Our results reflect a business in transition,” said CFO Zaf Mahomed.

“We are starting to see the impact of our changes which included a focus on more profitable subscribers and through the reduction in costs a shift to revenue generating activities. The foundations are now in place.”

The financial challenges faced by Cell C has seen Blue Label write off its investment in the firm to zero, but support plans for the company’s turnaround.

Stevenson said the investors were looking forward to “the proposed recapitalisation deal that will provide working capital aimed at driving revenue growth and profitability.”

Total revenue was down by 8% to R13.8 billion, with a notable contribution from the prepaid customer base.

 

How SA’s wealth was destroyed

AfrAsia Bank, in collaboration with New World Wealth, has published its African wealth report for 2021.

The report analyses the trends of the continent’s ultra-wealthy individuals.

Highlights include:

  • SA is home to over twice as many dollar millionaires as any other African country
  • Egypt has the most billionaires on the continent
  • The number of millionaires living in South Africa continues to decline
  • SA has 36 500 dollar millionaires, down by 1 900 from the number recorded in 2020
  • 1 930 multi-millionaires live in SA, each with net assets of $10-million or more
  • Five billionaires live in South Africa, with net assets of $1-billion+ each

The destruction of wealth:

  • SA’s wealth performance is classed as “poor”, with total private wealth held in the country declining by 25% over the past decade
  • Loss of currency value against the dollar affected this
  • Many local businesses shut
  • Wealthy people are emigrating – to UK, Australia, USA, Switzerland, Israel, Mauritius, New Zealand, the UAE, Canada, Portugal, Spain, Cyprus and Malta
  • An inability to sell houses valued at over R10-million
  • Coronavrius has had a negative impact, with private wealth and HNWI levels in Africa dropping by around 9% over the past year (2020), due to job losses caused by lockdown, lack of tourism, closure of businesses and rising debt.

By Siphelele Dludla for IOL

Eskom has proposed taking over debt laden municipalities as it tries a different approach in recouping around R36-billion in debt arrears that continue to weigh down on its balance sheet.

Chief executive Andre de Ruyter yesterday said the utility was piloting an “active partnering” model where it would over the running of struggling municipalities, like it did with Malutia-Phofung Local Municipality in the Free State.

De Ruyter said non-paying municipalities were a “major problem” to Eskom’s financial sustainability, adding that 70 percent of the arrears debt was owed only by 10 councils.

He said that Eskom had applied a variety of measures to recoup the debt, including the so-called nominated maximum demand and attaching bank accounts and movable assets, but all these efforts had come to nought.

“We are implementing something that we call active partnering. We have tried many levers to persuade municipalities to pay,” De Ruyter said.

“But the model that we think is going to work best is something that we are currently trialing with Malutia-Phofung.”

In July last year, Eskom attached the bank account of Maluti-a-Phofung following a court order granted in 2018 as of its revenue recovery strategy.

Eskom said this was a result of the repeated failures by the municipality to adhere to its payment obligations for the bulk supply of electricity.

De Ruyter said Eskom would step in and acts as the agent for the municipality by maintaining the infrastructure such as substations while assisting with billing and false prepaid metres.

Eskom would also collect revenue on behalf of the municipality and then pays it to its bank account.

“With that part of the revenue into Eskom’s bank account we can assure that the current account is serviced on a regular basis,” De Ruyter said.

“And if you prevent further build up of incremental municipal debt, that’s a very good start towards addressing the debt problem.

“So we certainly think that this active partnering concept is far more a constructive and an appropriate way of engaging with our customers and ensuring that we get paid, and that service delivery can be addressed.”

De Ruyter said there was still a substantial ramp of legacy debt that needed to be addressed.

He said building a financially self-sustainable Eskom was part of his top three priorities.

Though Eskom’s staff costs had come down after 2 000 workers left the power utility last year, De Ruyter said the debt burden was still at unsustainable levels.

“We are currently labouring under an unsustainable net debt burden that varies between R460bn to R485bn, depending on the exchange rate,” he said.

De Ruyter also said that Eskom was not opposed to self-generation for domestic purposes without a license.

President Cyril Ramaphosa last week said the government will begin amending the law to allow for self-generation of between 1MW and 50MW to ease the burden on Eskom.

“There is a narrative that Eskom is opposed to rooftop solar generation, that’s not true,” De Ruyter said.

 

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