92% of Retail Accounts are in Default on Credits

The last Stress Credit Report by the EIGHTY20 shows that the effects of the third wave of COVID-19 are highly visible on defaulted credits, mainly by the young population of South Africa.

The EIGHTY20 and the XDS Credit Information Bureau have recently published the Stress Credit Report, showing that the 18 to 24-year-old segment of the population was one of the hardest financially hit by Covid-19 pandemic. This study shows that out of five, three credits are in default within this age segment.

The pandemic that struck the World back in 2020 is far from being over, and its impact is not only seen in the unfortunate casualties, but also in the economic turmoil it brought about. Over 600K job posts were lost during the pandemic, only in the formal sector. And those who retained their jobs saw a decrease in their salaries, as shown by a 25.8% of respondents of a survey carried out by the South African Government. Last, the proportion of people feeling hunger has risen to a sad 7%.

Industries also felt the blow of the Covid-19 pandemic, the trade industry being the hardest hit with a year-on-year decrease in profits of R16 billion. After the trade industry, there follow in loss of income the service industry and the construction industry.

Covid-19 in South Africa, like in most parts of the World, impacted on the economy of every South African, but mainly on the population with lower income. According to Stats SA, household spending decreased during the last third quarter. This can be strictly related to the rise in electricity and petrol prices, which in turn impacted on the price of food, taxi fares, and the inability to pay bills and credit balances.

92% of the accounts in default are retail accounts and belong to the younger sectors of the population of South Africa. This segment consists of people under 20 (20.88% are students), mothers (41% of them are single mothers), and hustling males (60% with no jobs). The total balance of the defaulted accounts rises to a striking R200bn, of which 50% belongs to unsecured loans.

However, according to TransUnion, although the credit market is still below the levels found before Covid-19 pandemic, there is an increase in the participation of younger generations. One of the most sought after credit facilities that this segment is looking for is getting same-day loans. A type of credit instrument which allows South Africans to have immediate access to cash.

There has also been a 30% increase on the overdue balance on secured products by the middle class, showing that this sector has been unable to take care of their financial responsibilities.

There are some good news, though, that should be celebrated. According to the study by EIGHTY20, there is a quarter of the population of South Africa (older than 18) that has already been vaccinated.

COVID-19 has brought about economic turmoil and its impact will continue to be seen in the years to come. As it is reported by EIGHTY20, 92% of retail accounts defaulted on credits and these accounts belong mainly to the younger generations of South Africa. According to Quotes Advisor, in this context, many people turn to instant loans to alleviate their economic situation.