Card use in the South African economy is an indicator of economic status and the National Credit Regulator's latest report shows it clearly. Poorer people use store cards and as they become wealthier switch to credit cards.

"I'm an example of that!" laughs Nomsa Motshegare, the regulator's chief operating officer.

"I used to have five store cards. I decided to close all my store cards and I only have one credit card."

It is all part of the cradle-to-grave pattern retailers and financial services companies identify as consumers progress through the financial services market. They start with savings accounts, move to cheque accounts, get overdrafts, get store cards, then credit cards and later in life trade down to cards such as platinum or black credit cards.

The second-quarter credit growth that happened was in store cards and personal loans — products generally used by people who do not qualify for mortgage bonds — and suggests a healthier lower-end appetite for credit.

The Consumer Credit Report released today shows that in SA's current economy, the little credit growth that happened in the second quarter took place at the lower end of the consumer scale.

While new mortgage credit — the preserve of the wealthier — fell 6.7 percent from the previous quarter and 59 percent from a year earlier, lending on store cards and personal loans both grew in the second quarter, even though both declined in value from the corresponding period a year earlier.

People earning less than R10 000 a month accounted for 64 percent of all unsecured credit.

On the credit facility (card) side, store card lending soared as one major clothing retailer — the regulator will not say which — increased the annual limit on its card to R5000 from R2000.

Measured by number, more than 87 percent of all new credit facility agreements made in the second quarter were for store cards, known as 'white plastic' in the banking industry, which grant credit with low limits to people who don't qualify for credit cards. Store credit is generally more expensive than credit cards.

By the same token, however, poorer people were hit more heavily by the tighter lending criteria banks imposed on mortgages. Even though bonds under R150 000 account for less than a quarter of all mortgage agreements, restrictions such as higher deposit requirements reduced the number of bonds taken out by poorer people in the second quarter disproportionately.

The number of mortgages under R50 000 taken out fell 18 percent, while the number worth more than R700 000 declined just eight percent.

blebym@bdfm.co.za

Source: Business Day

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