The sustained reduction of interest rates and relaxation of lockdown levels is providing a significant boost to the recovery of average income and cash flow among salaried middle-class consumers who hold full-time or formal employment. This is according to FNB insights based on the income trends among its Retail and Private Banking customers who earn a monthly gross income of between R10 000 to R60 000.
The Bank states that the financial position of the average middle-income customer is now approximately on par with levels recorded in February 2020, before the implementation of the national lockdown. Additionally, spend patterns of consumers are showing recovery with most categories like groceries and entertainment back to normal except categories like travel that are still significantly lower due to the travel bans instituted during lockdown. In contrast, average income among informally employed and self-employed consumers continues to lag, as a result, this income group may take longer to regain their usual average income levels.
Chief Executive of FNB Retail and Private Banking, Raj Makanjee says: “The lockdown has been the toughest experience for consumers, emotionally and financially. However, the income recovery and improving cash flow among middle-income consumers bodes well for the economy as middle-class consumers have significant spending power. The timely adjustment of interest rates has been instrumental in cushioning consumers who are servicing debt against severe financial difficulty. Similarly, our Cashflow Relief measures have allowed our customers who earned partial or no income during lockdown levels 4 and 5, to manage the impact of this difficult period on their finances,” he says.
According to FNB, the average income of consumers who are employed by SMEs (employing less than 10 people) was impacted the most over the course of lockdown. The Bank estimates that one in two of people employed by these SME businesses have seen a drop of at least 15% in average income. However, only one in five of those employed by larger companies (1000 employees or more) experienced an average income drop of 15% or more.
While the current income recovery trend is encouraging, the Bank is aware that consumers continue to face difficulties as COVID-19 is still part of our everyday reality. As a result, it continues to avail its resources and platform to help customers with money management across its Retail and Private Banking areas. FNB has also initiated money management conversations and interventions to help its customers in making smarter decisions about their finances, find practical ways to free up cash flow in this period and educating customers on their finances to ultimately enable them to make informed decisions.
“By having these meaningful conversations, we gain better understanding of our customers’ situations and have greater insight to practically assist them with freeing up cash flow. Specific spending solutions across our customers’ credit, essential and lifestyle spending are assessed for each customer to determine how best we can assist them, furthermore, we are helping customers to align their spending to the things that are important to them in order to achieve their financial goals.
Additionally, our eBucks Rewards continues to provide real help and timely relief to customers during this period. We’ve also expanded our eBucks benefits for seniors to offer extra support to our senior customers. In the coming weeks, we expect to introduce more platform-based tools to give customers even more control over their budgets” adds Makanjee.
A recent study has highlighted the devastating impact the Covid-19 pandemic and subsequent economic turmoil has had on the people of South Africa.
The study by United Nations Development Programme (UNDP) on the socio-economic impact of Covid-19 in the country highlights the following:
- The country’s overall GDP is expected to decline by at least 5.1% and up to 7.9% in 2020
- The number of households below the poverty line will increases as households fall from the lower-middle class into vulnerability
- 54% of households that have been pushed out of permanent jobs to informal or temporary contracts are likely to fall into poverty
- As many as 34% of households are likely to exit the middle class
- The real average monthly take-home pay in the private sector is R14 197, according to BankServ
- The vast majority of South Africans operate in an informal sector, with salaries closer to R6 000 per month
- South Africa’s minimum wage is around R3 500 per month
- South African households were already getting poorer thanks to rising food prices and the general cost of living
- The middle-high to high-income category only makes up 2.5% of the South African credit active population
- Middle income made up 9.3% of the credit active population
- 55.5% of South Africans live below the national poverty line, but that number is likely to grow
By Robert Laing for Business Live
Shoprite’s share price fell as much as 5.7% to R175.32 after it warned shareholders its interim results would show flat sales.
Joining the queue of JSE-listed retailers reporting disappointing Christmas sales, Shoprite said its total group sales declined 0.3% in the December quarter, the second of its financial year.
The drop in sales in December quarter followed just 0.42% growth in the September quarter, which Shoprite blamed on teething glitches in a new Gauteng distribution centre and strikes.
Shoprite is scheduled to release its interim results on February 26.
“Liquor stores remain a standout performer with 20.09% sales growth for the period,” CEO Pieter Engelbrecht said in Tuesday’s operating update.
“The group’s core business, Supermarkets RSA, achieved 2.58% sales growth for the period. Persistently low internal food inflation in SA of only 0.2% for the period marks 18 months of near stagnant prices of basic foods in which the group has a larger market share,” Engelbrecht said.
“The core Shoprite middle income consumer base remains under pressure. This was evidenced in Christmas sales in categories such as back-to-school essentials, which outperformed traditional discretionary purchases such as toys for the first time.”
As the festive season has kicked off in earnest and consumers spend more, FNB on Monday warned that approximately 56 percent of middle income consumers in South Africa spend all their monthly income in five days or less after receiving it.
This is according to data from FNB’s Retail segment, which categorises middle income consumers as those who earn a gross monthly income of between R7 000 up to R60 000.
Raj Makanjee, chief executive of FNB Retail, said that for many consumers it was not only a matter of living from one salary payment to another, the reality is that their monthly salary just does not last for 30 days.
Makanjee encouraged consumers to exercise financial discipline, saying that financial discipline was not dependent on having greater income but requires deliberate steps.
“These consumers tend to struggle with money management, with the shortfall leading to sacrifices in important areas such as having back up or emergency saving that can be used to pay for unforeseen expenses. High spending and limited savings cause consumers to rely on credit to get through the month, making them more vulnerable to be caught in a debt trap,” Makanjee said.
Christoph Nieuwoudt, chief executive of FNB Consumer, said more than half of consumers miss at least one debit order over a 12-month period, indicating the pressure consumers are under.
“For almost 40 percent of such customers, debt repayments make up more than half of their take-home-pay, which we consider to be very high. The main driver of this is large numbers of microlender loans and store cards that consumers take up. The ideal scenario for a consumer is to have one provider who gives them a transactional account and the right type of credit when needed,” Nieuwoudt said.
The bank said said it had also seen that 30 percent of middle income consumers who are saving, save for emergencies and at least one other longer-term goal.