With interest rates at the highest level in 14 years, households are taking tremendous strain. Some estimates put the increases in car and home loan repayments at an average of 11% and 38% in rand terms respectively in the last 18 months.
Nedbank says household debt burdens are at 62% of disposable income, while the “cumulative 475 basis point increase in interest rates since 2021 pushed debt service costs to 8.4% of disposable income from a 16-year low of 6.7% in the final quarter of 2021″.
“As a result, households increasingly relied on savings to sustain living standards, depleting the buffers built up during the pandemic. The personal savings rate stood at -0.2% in the first quarter from a peak of 1.5% in the third quarter of 2020.”
It says “growth in mortgages, vehicle finance and personal loans softened, while demand for transactional credit remained relatively firm”.
Approval rates for vehicle finance and personal loan applications at Nedbank are at the lowest levels in five years, while for credit cards, only last year’s approval rate was lower. Take-up rates on vehicle finance are at the lowest level in five years.
Home loans are the outlier, with approval rates at their highest in five years (higher than pre-pandemic). Take-up rates on home loans are at the highest level since 2019.
Debt servicing costs
Data from Nedbank shows just how stark the increases in the costs of servicing debt have been in the last year.
Home loan repayments for its 3.4 million main-banked clients are up 18% on average versus the first five months of last year, vehicle finance debit orders have increased an average of 10%, and personal loan repayments are 4% higher.
The numbers are roughly in line with those shared by Capitec on its 20 million customers (not all main-banked) in April, which showed home loan debit orders up 20% across the year to February, with vehicle finance spend up 15%, and personal loans 12% higher. The profile of an average Nedbank client would be rather different to a Capitec one.
Nedbank says the biggest increase in so-called “essential expenditure” has been on groceries, up 16% versus 2022. Education and healthcare spend are up 8% and 7%, respectively. It says average fuel spend across its client base is flat, despite fuel prices being around 7% higher than the same period last year. The divergence with Capitec’s likely lower-income customers is stark, with their average education spend down 15%, with groceries up 8% and fuel 16% higher.
The only category of discretionary expenditure that grew when comparing January to May this year versus 2022 is fast food, where average spend among Nedbank clients was up 4%. Given elevated levels of load shedding, this ought not to be a surprise. The average spend on home improvement was down 7% year on year, with a 2% drop in spending on both clothing and alcohol.
Capitec’s client spend on alcohol was 9% lower for March 2022 to February 2023 compared to March 2021 to February 2022. Clothing spend was 2% higher, while home maintenance expenditure declined by 13%. It saw a 36% increase in average spend on takeaways, albeit off a far lower base than spend in other categories.
These increases would be fine if wage growth was robust. It is not.
Nedbank says income growth was just 4%, on average. It says this reflects “the average effect of some clients receiving increases above inflation, some clients below inflation as their employers could not afford higher increases and some clients that may have lost or reduced their income”.
This 4% figure is exactly in line with the 4% average increase in salaries or regular deposits across Capitec clients.