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South Africa consumer lending affected by rising utility costs and lowering disposable incomes in 2012
Consumer Lending in South Africa - a new market research report on 2014-04-10 14:17:01
The 2012 period continued to reflect South Africa´s economic and socioeconomic challenges, particularly with regard to high unemployment, low levels of education, high levels of income inequality and high poverty levels. Widening current account deficits, labour market and exchange rate volatility coupled with the impact of the euro crisis intensified the country´s challenges. Rising utility costs continued to put pressure on disposable incomes, leaving a large proportion of South Africans turning to various forms of borrowing in order to fund daily expenditure, with unsecured lending played a key role in this regard.

Challenging economic conditions have posed the greatest threat to economically vulnerable consumers, who, in order to fund daily expenses, have turned to unsecured lending. Growth from a low base contributed to the dynamic growth levels witnessed within unsecured lending. There has been increasing concern with regard to growth rates as well as the high levels of impairments arising from the increase in the volume, value and terms of repayment of unsecured loans.

The South African market has witnessed increased competition from smaller market players such as Capitec and African Bank. These banks identified and responded to the high-margin opportunities available in unsecured lending – both banks have witnessed substantial growth in their lending books. Larger banks have also responded to this opportunity, but to a lesser extent, and remain fairly cautious when lending to high-risk consumer segments, focusing more on lending to existing accountholders.

South Africa continues to witness constrained growth in mortgages. Low growth rates can be attributed to the unfavourable property market conditions with depressed property market values, costs relating to bond origination, debt review process challenges, relatively low margins and increases in capital requirements. Due to strict lending standards by the leading banks, mortgage finance was limited to consumers who had low-risk borrower profiles. It has also become increasingly difficult for South Africans to use their mortgage loans as collateral for accessing other forms of credit, further enhancing the appeal of unsecured loans.

Tighter regulation will play a key role in curbing reckless lending and limiting consumer debt levels. Over the medium term, however, the majority of South Africans are expected to continue to struggle financially while the country deals with rising utility costs, high unemployment, low education levels, high income inequality, high inflation rates and mediocre GDP growth. The country´s financial inclusion plans will bring more South Africans into the formal sector, opening up consumers to an array of financial product offerings. Despite government initiatives to educate South Africans with regard to financial freedom, the medium term is still expected to witness an increase in gross lending figures, mainly due to South African consumers´ attempts to support daily expenditure.

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