Tag: debt

By Marelise van der Merwe for News24

Eskom has met with Merafong mayor Nozuko Best and her management team in a bid to deal with the municipality’s spiralling debt, as it now owes Eskom just under R700 million, the power utility said.

This follows a similar meeting with Tshwane mayor Randall Williams late in January in an effort to recover R635 million owed to it by the city.

Merafong’s skyrocketing account is due to “poor and irregular payment patterns”, Eskom said in a statement. The municipality has committed to managing its account, an undertaking that was reached during a meeting on Wednesday.

Eskom billed the municipality over R38 million in January, it said, but was paid R18 million.

The power utility said it anticipated a “good working relationship” with the municipality going forward.

“The municipality has pledged to put together a payment arrangement proposal which we will review, as well as pay[ing] their current account on time,” said Eskom senior manager for customer services, Daphne Mokwena.

Mokwena said overdue municipal debts had a knock-on effect on Eskom’s liquidity, financial performance and overall sustainability. The utility has been battling rising municipal debts for years, with CEO André de Ruyter flagging this as one of the state-owned company’s key concerns.

In August last year, Eskom chief financial officer Calib Cassim said while the utility had managed to reduce its gross debt by over R81 billion – a reduction of nearly 17% – the entity was still facing a significant challenge exacerbated by outstanding municipal debts. Over the financial year ended in March 2021, outstanding municipal debts rose 26% to nearly R36 billion.

Just 10 municipalities had honoured their agreements for arrears payments.

 

City of Tshwane cuts off SAPS, SARS and Gautrain

By Molaole Montsho and Sihle Mlambo for IOL

The City of Tshwane has disconnected water and electricity supply at the Gautrain’s Hatfield Station due to non-payment of a R10-million rates bill, the City said on Tuesday.

On its Twitter account the City of Tshwane said Gautrain owed over R10 million and that they last paid their account in 2020.

However, Gautrain said on its social media platform that all Gautrain train services were operational and travelling according to schedule.

They said the disconnection of services was illegal and said they would be heading to court on an urgent basis to force the City to reinstate services.

“Yesterday officials from the City of Tshwane cut off water supply to Hatfield Gautrain station claiming that it was owed approximately R10m for services. This afternoon the City cut off electricity supply to the station.

“Hatfield station has a pre-paid electricity meter and the account is not only up to date but in credit to the value of approx R120 000. The water account is also up to date.

“We’ve been trying without success to contact the City to provide a statement of account and last night, the City shared a screengrab with us which reflects an account number that differs to the account number reflected on their notice to terminate services.

“The City has illegally cut off services to the station. Given that the water and electricity accounts for the station are paid in full and are up to date, we are calling on the City to urgently reconnect the water and electricity supply to Hatfield station and to avail itself to meet so that we can obtain a full statement of account rather than a screengrab,” the Gautrain said.

They added that they would be approaching the court to urgently interdict the City to restore services to the station “given its wrongful termination of services to Hatfield station”.

The City of Tshwane has been on an aggressive drive to collect billions of Rands owed to it by defaulting businesses, embassies, government departments and state owned companies.

Last week, the City said it was owed over R17bn in unpaid water, lights and property rates.

The SA Revenue Service (SARS) and the SA Police Service Headquarters were among those disconnected on Tuesday.

“SAPS Headquarters disconnected. The landlord (Mendo Properties) owe us R5.1 mil … SARS is the tenant. We are owed by the landlord,” the city said.

SARS said the building it occupied at Ashlea Gardens in Pretoria does not belong to them.

“We wish to put it on record that the building occupied by the organisation does not belong to SARS. It is a leased property, and to date, all services have been paid for, in full and on time.

“We sincerely apologise to taxpayers for the inconvenience that this may have caused. We will engage with the owners of the property, with the view to have this matter attended to as a matter of urgency,” the revenue collector said in a statement.

It said in the meantime, the office was using a generator and remains operational.

In a statement, City of Tshwane spokesperson Sipho Stuurman said the City encouraged all clients to pay their accounts to avoid service interruptions.

“The City of Tshwane has noted a concerning trend of non-payment due to disputes being lodged regarding certain services on municipal accounts,“ Stuurman said.

“We would like to make it clear that a dispute on a service line, such as electricity, does not exempt customers from paying for other municipal services, such as water, sanitation and waste services. It is important that customers continue to honour payments on all services consumed while a dispute is being addressed,” he said.

 

The cocktail fuelling loan default fears

By Londiwe Buthelezi for News24

Interest rates might not need even to reach 2019 levels before many consumers start to battle with their monthly instalments, says debt counselling firm DebtBusters.

The company, which presented a five-year trend on consumer debt in SA on Tuesday, said it has already started seeing the impact of the rising interest rates among consumers who’ve approached it for debt counselling.

“We can already see the impact because what happened was consumers adapted to the new way, expanded their spending and their borrowing. So, I don’t think we need to wait for the interest rates to get to where they were a few years ago to see the impact,” said DebtBusters COO Benay Sager.

The SA Reserve Bank began increasing the interest rates in the country in November 2021 after five successive cuts in 2020.

For one-and-a-half years, consumers became used to the record-low cost of servicing their debts. Many took advantage of that and bought homes, cars and other assets. Data from the National Credit Regulator showed that SA consumers collectively owed R2.08 trillion at the end of September 2021, and they accumulated R150 billion of that from the last quarter of 2019.

After the first 25 basis points hike in November, DebtBusters recorded an 18% increase in the number of people making inquiries about debt counselling in the fourth quarter of 2021. This January, the number of people knocking at its doors has increased by 32% compared to January last year.

DebtBusters has not sifted its data to the point where it can tell how many of those are battling to service the debt they took out in 2020 or 2021. But it will start looking at that soon.

But before the last two interest rate hikes, people applying for debt counselling were already spending around 62% of their take-home pay on repayments. Those taking home more than R20 000 a month used two-thirds of their income towards debt repayments.
Bigger loan sizes and spiralling unsecured debt

From the third quarter of 2016, the prime lending rate was 10.5%, and it stayed around 10% for the most part until January 2020. Consumers who approached DebtBusters then were paying around 11% interest on average on their home loans and about 14% for their cars.

Loan sizes were smaller in those years than they are now. Their repayments were lower; yet, people were already turning to the debt counselling firm for help at those interest rates.

Now, the average size of a secured loan has grown by 32% between the third quarter of 2016 and the third quarter of 2021. First-time homebuyers in 2021 were buying for R1 million on average, whereas they spent under R900 000 on a home in 2019.

The average size of unsecured loans has grown even more rapidly at 45%. The use of unsecured debt products like credit cards, store accounts and overdrafts was 22% higher than 2016 on average but 43% higher for top earners.

Some people have started using these credit lines to honour their other debt obligations – a case of borrowing from Peter to pay Paul.

“Consumers are essentially borrowing more to sustain their debt obligations but also their expenses,” said Sager.

As larger loan sizes mean higher repayments, consumers turn to debt counselling much faster than they used to before. Back in 2013 and 2014, indebted consumers turned to DebtBusters when they had around nine credit agreements.

“Now it’s around six. What this means is consumers have more debt per credit agreement,” said Sager.

Declining incomes

Stagnant incomes are partly to blame for people turning to unsecured debt to pay their other creditors or their living expenses once debt repayments leave them dry.

People who applied to DebtBusters in 2021 took home 1% less in net income than in 2016 on average. Those netting more than R20 000 took home 5% less. Over that same period, inflation increased by 24%. So, on average, those approaching the debt counselling firm had 25% less purchasing power than they did five years ago.

“Even though inflation is reported to be between 5% and 6%, in reality, what consumers are feeling, particularly with electricity and municipal increases, is far higher than that,” said Sager.

 

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”.

 

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