According to the Chinese calendar, 2013 is the Year of the Snake - an animal sign which has been notoriously bad luck for humankind in the past. The 1929 stock market crash, the strike on Pearl Harbour in 1941, and the horrific terrorist attack on the World Trade Centre in 2001 all took place in the Year of the Snake. Whether or not you believe in Chinese astrology, most South African consumers will agree that so far, 2013 has been a challenging year - particularly in the area of their financial health.
Following on from the financial pressures consumers felt in 2012, 2013 has continued to see consumers struggle to regain their financial footing. Increases in petrol, electricity and food prices, along with several other factors, have impacted consumers to such an extent that many may no longer be able to meet their financial obligations.
The true position that many consumers find themselves in is reflected in the National Credit Regulator's (NCR) recent Credit Bureau Monitor, which shows the number of consumers with impaired credit records has increased by 189 000 consumers to 9.53 million in the quarter ended March 2013.
Since December 2010, the number of consumers with impaired credit records has continued to rise and has now reached alarming levels, with 47.5% of all credit active consumers having an impaired record. What is equally concerning is that with current interest rates at a record low, consumers should be in a better position to manage their credit obligations.
Furthermore, statistics indicate the number of credit bureau enquiries made for the purpose of consumers seeking credit decreased by 11.2%, indicating that consumers are cautious about taking on additional credit commitments. This slowdown in credit granting was further highlighted in the recent Consumer Credit Market Report, which showed there was a 14.72% decrease in new credit granted to consumers for the quarter ended March 2013.
While all credit types experienced a quarter-on-quarter decline, unsecured credit had the largest quarter-on-quarter decline with 22.29%. This decease could be the result of a reduced number of consumers seeking credit as a result of their inability to take on more debt; however, it could also be attributed to the tighter lending policies of credit providers and more cautious approach to granting credit.
Unfortunately, the increase in impaired credit records coupled with the decrease in new credit being granted does not bode well for credit providers who too may find the Year of the Snake turbulent. While many have already significantly tightened their lending criteria, there will be a continued focus on collections and tracing to keep bad debt levels to a minimum. In addition, many lenders are focusing more on their existing customer base and granting unsecured loans mostly to this segment. Unfortunately, as new credit supports household consumption, the economy could also be dramatically affected if the decrease in new credit becomes more severe.
Ultimately, it thus may not only be consumers who are in for a difficult time in 2013. However, provided consumers monitor their debt levels and credit providers lend cautiously and implement the necessary risk management solutions, both should be able to protect themselves from the vicious bite that this year may hold.
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