Finance: Consumers stumble under mountain of debt
Recent Gauteng Business News
Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, an economist of Gauteng said.
The 17.6 percent year-on-year increase in July liquidations to 320 was exactly in line with expectations of a 20 percent increase, said Luke Doig, senior economist at Credit Guarantee.
This followed the release by Statistics SA earlier of the latest liquidations and insolvencies data.
Fred Steffers, managing director of the Consumer Profile Bureau, South Africa’s most comprehensive source of credit information, confirmed that there had been a substantial increase in adverse credit judgements.
We have seen as steady rise over the past 18 months in both insolvencies and adverse judgements which confirms that consumer debt is busy catching up with consumers.
Banks and finance houses, despite their conciliatory public statements that they will attempt to help indebted clients to reschedule debts rather than yank the mat from under their feet by sequestrating them are in fact doing very little to help solve the crisis.
Dr Eddie Stoop, CEO of the Elite Group (a wholly owned affiliate of AltX listed group African Dawn Capital) and a major player in the micro finance industry said the increase in adverse judgements and insolvencies had had a positive effect on his business because individuals who did not qualify for bank loans were now making use of micro lenders.
“The past six months had been record months for the company with growth in the double digit numbers.
“In large measure thanks to the new National Credit Act but also due to the downturn in the economy, banks have become very weary in dealing with the bottom end of the market. One expert has estimated that up to 80% of smaller loan applications are being turned away by the big four banks.
“The net result is that Elite and other microlenders are all reporting record growth,” Stoop said.
Steffers confirmed that there had been a substantial increase in credit enquiries from microlenders which would indicate increased turnover by the micro lending sector.
“The substantial increase in civil debt judgements, personal insolvencies and liquidations coupled to the downturn in the economy had scared many banks away from the unsecured loan sector. In many cases, microlenders had picked up the slack,” he said.
Company closures rose 31.8 percent in July although the year-to-date figure was 5.7 percent down on 2007 levels.
Liquidations of close corporations were just 4.9 percent higher in July and smaller enterprises appeared to have borne the brunt of the tougher operating conditions, being 31.4 percent higher in the first seven months of this year.
The wholesale and retail trade industry in Gauteng showed a 28 percent month-on-month deterioration (75 to 96 closures) while on a year-on-year basis, the broader financial and business services sector experienced 45.5 percent more closures (101 to 147).
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