Financial resilience among South African households had improved consistently since 2019, but was threatened by higher interest rates, according to a key index that measures data on household wealth.
The Altron FinTech Household Resilience Index (AFHRI) for the first quarter of 2022, released yesterday, showed there had been a steady improvement of South African households’ ability to repay debt since 2019.
However, “although the ratio of household income to debt costs has improved considerably since 2019, a negative reading has been recorded since the fourth quarter of last year. With interest rates on the rise, this could weigh on the AFHRI for the rest of the year,” said economist Dr Roelof Botha, who compiles the index on a quarterly basis.
The AFHRI is commissioned by Altron FinTech to provide more clarity on the financial health of South African households in general, and their ability to cope with debt in particular.
Botha said this was important as short-term loans and unsecured credit granted by micro-finance institutions play a major role in combating a key element of inequality, namely the ability to have money available to spend on consumption goods like food.
“The sector also plays a big role in financing working capital for SMEs, an important area for South Africa’s growth,” he said.
Following a predictable sharp downturn in the AFHRI in the second quarter of 2020 due to the pandemic, most of the key indicators had staged a fairly swift recovery, with the trend line moving back to a positive growth trajectory.
“Although the index moved sideways over the past four quarters, it is now 2.4 percent higher than in the first quarter of 2019, signalling a full recovery from the pandemic,” Botha said.
The latest index reading of 109.9 was virtually unchanged from the level of 110 recorded in the first quarter of last year, and Botha believed the quarter-on-quarter decline of 2.5 percent in the value of the index was not a cause for concern.
“This is a seasonal trend, and it’s still a relatively better performance for this quarter than the country’s GDP for example, which declined 3.6 percent between the fourth quarter of last year, and the first quarter of this year,” he said.
He said the AFHRI trend line was broadly in line with a number of other recent economic indicators, including the GDP, retail trade sales and the South African Reserve Bank’s leading composite business cycle, which reached an all-time record high in 2021, as did the Absa Purchasing Managers’ Index for the manufacturing sector.
Botha said this is due to the relatively high weighting in the AFHRI for employment and labour remuneration, with public sector wages and public sector employment likely to remain a strong underpin of the index in the short term.
“One of the advantages of the AFHRI is it allows for comparisons over time, with 16 other indicators that have a bearing on the financial resilience of households. Major variations in the indicators serve as a pointer for the likelihood of future improvement or deterioration of household finances.”
The performance of the index has lagged behind that of the economy as a whole, especially since 2019.
The one component indicator of the AFHRI that warranted some concern was the level of credit impairments by banks, which remain 21.5 percent higher than just before the pandemic. Although an improvement had occurred over the past year, the return to restrictive monetary policy could thwart further progress, Botha said.
BUSINESS REPORT