By Kevin Lings

SA non-performing loans - loans that have been overdue for a period longer than 90 days - expressed as a percentage of total loans and advances, started to trend upwards from very low levels during 2007 as tighter credit conditions and higher interest rates impacted on household finances.

While the aggregate balance sheet of the household sector remains fairly sound, pockets of financial distress have been most evident in non-performing credit-card debt, which increased from around 5% of total credit-card debt at the beginning of the year to 7.5% at the end of the year, as well as in car finance, which rose from around 3.0% in early 2007 to 4.3% in late 2007. (The credit-card companies have purposely been more aggressive in advances credit over the past few years despite knowing that there would be an increase in bad debts. This is simply because of the high profitability of this market segment.)

Interestingly, although interest rates have moved up 400 basis points in the past two years, non-performing mortgage loans have increased from less than 2% in late 2006 to around only 3% currently.

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Source: Kevin Lings, Stanlib, March 19, 2008.

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