Consumers paying off their spending binge
DEBT-LADEN consumers have been making a concerted effort to reduce their borrowings by paying off their store credit accounts.
Rory Matthews, general manager of Experian, a credit information services company, says "good" customers are paying up their accounts to the extent that 50% of retail credit accounts are now fully paid off, or are dormant.
The consumers who are still using their accounts are only utilising a small portion of their credit facility.
Another new trend among consumers is that they are approaching banks to consolidate their debts. In other words, they are paying off all their store accounts and opting to repay one overdraft instead.
This contrasts with the post-election credit euphoria in which substantial amounts of credit were granted to consumers who promptly used up their full credit facility.
Dave Galloway, economist at Investec, says private credit extension figures have been slowly coming down from 19% in mid-1995 to the current 13.71%. However, he points out that household debt is still a very high proportion of disposable income.
But the bad news is that the high-risk, non-creditworthy customers are still spending up a storm.
Those applying for credit are high-risk people who are in trouble.
Creditworthy people are not applying for any more credit, says Matthews.
He says 33-million retail accounts are spread across a credit active population of 12-million to 15-million people - indicating South Africa is a society relying on credit to fund its lifestyle. Around 20% of these people have a black mark against their name.
Between 40 000 and 50 000 judgments worth about R400-million are taken monthly. Judgments peaked in 1996 and have been dropping since.
Retailers have been tightening up on credit extension. Generally they turn away about 20% to 30% of charge account applicants, but are now rejecting up to 60%.
They got their fingers burnt in granting too much credit after the election.
Matthews says the sobering in credit activity will prevail even after interest rates drop. "Consumers will not want to get back into the credit cycle."