Mid-to-high income South African households are finding it increasingly difficult to repay debt and continue to make use of their credit cards.

This is according to the Experian Consumer Default Index (CDIx) for Q4 of 2023.

The CDIx measures the rolling default behaviour of South African consumers with home loans, vehicle loans, personal loans, credit cards and retail loan accounts.

Data shows that all product-specific CDIx metrics changed for the worse year-on-year, from 3.97 to 4.68 – a change of 18%.

According to data from the index, home loans and credit cards showing the most significant deterioration.

The report has revealed that the higher-affluence consumer groups have been under increasing pressure to honour their debt commitments, resulting in an increasing number of debt review applications.

Jaco van Jaarsveldt, head of Commercial Strategy and Innovation, Experian, said that the findings of the report have major implications for financial institutions that operate in the country.

“With an increased risk of defaults, particularly in home loans and credit cards, banks and other lenders may need to reassess their risk management strategies and lending criteria,” Van Jaarsveldt said.

The prime lending rate which has remained unchanged since March 2023 has also put pressure on credit active consumers.

Van Jaarsveldt said: “The rapid rate at which interest rates have increased and have now been sustained for the last 10 months, has been putting immense strain on credit-active consumers – particularly those consumers with exposure to secured credit, like homes and vehicles.”

Younger consumers in particular have been feeling the pressure as navigating through times of sustained high interest rates is new territory.

While people are struggling to manage their credit, the appetite for consumer credit has shown an increase in 2023 Q3, according to data prepared by the National Credit Regulator.

According to van Jaarsveldt, the sustained high application levels suggest that consumers are looking for credit to cover the shortages in their cost-of-living expenses.

The latest data shows that approval levels remain low, which means that more than two-thirds of credit applications are rejected.

The lack of approvals partly stems from the inability of consumers to afford additional credit commitments.

Source: https://www.iol.co.za