- Govt employees account for most household credit
- Unsecured banking loans dominate lending to households
- BoB survey shows men incur more debt than women
The survey reveals that of this P54.8 billion, banks loans comprised 88.9 percent followed by micro-lenders’ loans which borrowers utilised mostly for personal use including education, renovation of property, acquisition or expansion of business and debt consolidation at 9.1 percent, hire purchase credit which was mostly used for the acquisition of furniture, home appliances, as well as electronic equipment and devices at 1 percent and SACCO’s loans taking a portion of a percent.
Most of the lending to households by banks was in the form of unsecured personal loans, which accounted for 65 percent of the total bank credit in December 2020 compared to 63 percent in 2019. The second largest debt category was residential property at 29 percent, which is a decline from 31 percent in 2019, followed by motor vehicle loans at 4 percent and credit cards at 1 percent.
In the commercial banking sector, credit card loans were the most expensive (as high as 41.25 percent interest rate per annum), followed by unsecured personal loans (as high as 28.5 percent interest rate per annum) across all banks that have these facilities.
Asset-backed facilities, mortgage and motor vehicle loans are less risky to lenders and thus generally cheaper than other credit. Interest rates charged on mortgage loans by commercial banks, declined from an average of 8.1 percent in December 2019 to 7 percent in December 2020, reflecting a reduction in the Bank Rate in 2020 from 4.75 in December 2019 to 3.75 in December 2020.
According to the findings of the survey, most of the household borrowers were government employees (including parastatals) at 59.8 percent, followed by private sector employees at 36.9 percent. The self-employed accounted for 2.7 percent while unemployed individuals accounted for 0.6 percent of total household borrowers.
“Relating to credit provision based on monthly income levels, most borrowers earned monthly income ranging from P3 000 to P19 9994 (53.4 percent), followed by those who earned less than P3 000 per month (33.5 percent), while those earning P20 000 and above per month constituted 13.1 percent of borrowers,” BoB says.
The dominance of government employees in total household debt obligations was mainly due to the government being the single largest employer. The survey also revealed that men incur more debt than women with 370 122 of the 583 286 household borrowers being males.
“Banks financed 59 percent of household borrowers, followed by micro lenders (23.2percent), hire purchase stores (14.8 percent) and SACCOS (3.1 percent),” the report says. “The survey indicated that household borrowers aged 30 to 49 years were in the majority in the overall credit market, at 70.6 percent (60.7 percent in 2019), followed by those aged 50 years and above (15.8 percent) and those less than 30 years (13.6 percent). In value terms, 56.3 percent (of the loans) went to males compared to 43.7 percent for females.”
On the credit demand outlook for 2021, overall micro lenders (65 percent), banks (46 percent) and hire purchase stores (33 percent) generally viewed the outlook for demand for credit as moderate in 2021. “The COVID-19 pandemic was identified as a major factor affecting outlook for demand for credit in 2021,” says BoB. “Banks explained that business operations were negatively affected and that the property market was expected to experience a slowdown as the pandemic has affected the ability to sell and slowed origination (process by which a borrower applies for a new loan, and a lender processes that application).”
Similarly, micro lenders have indicated that their credit outlook is informed by the COVID-19-related effects on the economy that has resulted in relatively low business activity, loss of employment and income, and in the absence of an increase in salaries of civil servants. Likewise, the risk of retrenchments and loss of income was highlighted by hire purchase stores as factors that informed their credit outlook.
Meanwhile, 67 percent of hire purchase stores, 30 percent of micro-lenders and 18 percent of banks stated that they expected demand for credit to be low in 2021. Absence of salary increments, reduction/loss of income as result of COVID-19 informs the expectations of banks and micro-lenders. The results of the survey also indicated that 36 percent of banks and 5 percent of micro-lenders expected demand for credit to be high in 2021.