South Africans are beginning to see glimmers of improvement in their financial circumstances, but for middle-class and wealthy individuals, the strain remains.
This is the key takeaway from Eighty20’s latest Credit Stress Report for the third quarter of 2024, which paints a mixed picture of the country’s credit landscape.
The total number of credit-active individuals increased by 1.4% year-on-year, reaching a record high as South Africans turned to credit to manage financial pressures.
Credit products also grew by 1%, bringing total loan balances to R2.47 trillion—a R47.6 billion (nearly 2%) increase compared to last year.
Alarmingly, 40% of this growth stemmed from credit card and retail credit balances, underscoring a troubling reliance on high-interest, unsecured credit products.
Overdue balances rose by a modest R4.7 billion year-on-year to R194 billion, representing 8% of the total outstanding debt.
One of the more troubling findings was the growing concentration of credit value among a shrinking pool of individuals.
While total outstanding loan balances have grown at a compound annual growth rate (CAGR) of 5% since 2021, the number of credit-active individuals has expanded by just 1.4% CAGR.
Home loan balances have surged at nearly 50 times the growth rate of home loan holders, and credit card balances are growing at 11 times the rate of credit card holders.
This reflects a widening gap between those who can access substantial credit and those who cannot, putting further pressure on the middle class and wealthy individuals who account for the bulk of this borrowing.
The middle class, defined by Eighty20 as households earning nearly R25,000 per month or individuals earning R15,000, has not been spared.
This group grew by 2.2% over the last year to 3.6 million credit-active individuals, with 989,000 new loans issued in the third quarter alone—an 8% increase.
However, overdue balances in this segment rose by 2.1% quarter-on-quarter to R79 billion, driven largely by overdue unsecured loans.
The wealthy—referred to as “heavy hitters” and representing the top 5% of earners—have also felt the pinch.
This group’s credit-active population grew by 4% year-on-year to 2.15 million individuals.
They hold a staggering 65% of the country’s total loan balances, amounting to R1.61 trillion.
Home loans account for the lion’s share at R955 billion, which grew by 1.9% in the third quarter.
Despite this, overdue balances for heavy hitters increased by 1.5% quarter-on-quarter to R46.2 billion, with unsecured loans, credit cards, and home loans making up most of the overdue amounts.
While the middle class and wealthy face mounting financial pressures, there are encouraging signs for low-income workers.
Overall, the percentage of people in credit default has declined by more than 8% over the past year, continuing a consistent three-year downward trend.
The proportion of loans in good standing has also improved, reaching 64.5% this quarter compared to 62% in the first quarter of 2020, before the onset of the COVID-19 pandemic.
This demonstrates that some South Africans are managing their debt more effectively.
Despite these positive indicators, the report underscores the ongoing financial strain on South Africans, particularly among the middle class and wealthy.
The significant growth in overdue balances for high-value loan products highlights the challenges faced by these groups, who are increasingly turning to credit to navigate rising costs and stagnant wages.
With credit card and home loan debts surging, the financial outlook for higher-income earners remains precarious, even as the broader economic environment shows subtle signs of improvement.
