South Africa’s credit participation, muted for years after the pandemic, saw its sharpest expansion in Q2 2025 since Covid-19.
The number of outstanding bank and retail loans rose by 3.5% YoY. Most of this growth in account volumes stemmed from unsecured loans, which saw a YoY growth of 5.8% (associated with a 3.3% increase in outstanding balances).
Since the pandemic's economic disruption, South Africa's credit market has been characterised by muted growth. Years of economic uncertainty, rising interest rates and inflation pressure has kept lenders in a conservative mindset.
The number of credit-active people grew slowly as only consumers with the lowest credit risk continued to qualify for new credit. Many consumers battled to qualify for new credit against the backdrop of risk-averse lending strategies employed by many lenders in the market.
This was exacerbated by the increase in cost of living impacted by not only high inflation and interest rates, but also stagnant salary growth that has put consumer affordability under considerable pressure.
The latest increase in credit accounts suggests that lenders are cautiously easing credit-lending criteria. Reports by the National Credit Regulator indicate that there continues to be a very high demand for credit in the market, suggesting that consumers continue to look to credit as a means to bridge the cost of living gap.
Positive financial tailwinds
Several economic factors could have encouraged lenders to continue the cautious ease resulting in credit expansion:
- The rand strengthened significantly as the US dollar experienced its steepest decline in over 50 years, falling to its lowest level since the second quarter of 2022.
- Petrol prices fell by nearly 3% QoQ, putting money back into consumers' pockets. Fuel costs and pass-through costed taxi fares represent a significant portion of monthly budgets, making this decrease meaningful for disposable incomes.
- The FNB/BER Consumer Confidence Index recovered from its lowest point since the second quarter of 2023, reflecting improved sentiment among South African households.
- With inflation falling to its lowest level since Covid, consumers experienced a slowdown in pressure on their purchasing power, creating space for new financial commitments.
- The fourth repo rate cut in a year put the prime lending rate at 10.75% reducing the monthly instalments on existing secured loans.
Borrowing momentum builds
2025 Q2 has also seen a significant increase in outstanding balances, up to nearly R2.6trn, a YoY increase of nearly 6%. Although this partly stems from an increase in credit accounts, the bulk of this increase was due to a sharp increase in outstanding balance in the higher-end credit products of home loans and credit cards.
Looking at the entire market, credit cards and home-loan balances each expanded by nearly 7% YoY. Retail credit expanded even more, indicating that these credit products are leveraged by consumers to cover day-to-day living expenses.
In the case of home loans, the increase in exposure comes in spite of a reduction in the volume of credit accounts. This could be indicative of consumers with home loans leveraging the facility to access much-needed cash.
This quarter saw an influx of first-time borrowers. Nearly 740,000 new-to-credit individuals entered the market, a 4.8% QoQ increase. This equated to a growth in their total loan balances of 8.3% over the last quarter, with retail and unsecured debt remaining the most common entry points into the credit market.
However, there are some concerning undercurrents that suggest not all borrowers are managing their debt effectively. Total overdue balances increased to nearly R215bn, equating to a R22bn annual increase. This amount represents 8.3% of the total outstanding debt.
More troubling, overdue balances grew twice as fast as total balances compared to the previous year, with overdue loan balances maintaining double-digit YoY growth for two consecutive quarters.
The quarter also saw the first growth in the number of loans in default (337,000) since early 2023, suggesting that the credit expansion may be outpacing some consumers' ability to service their debt.
“Nearly three-quarters of overdue debt is concentrated among the three wealthiest Eighty20 consumer segments, the Middle Class Workers, Heavy Hitters and Comfortable Retirees. These segments typically qualify for high-end credit products with high monthly payments.
This distribution suggests that credit stress spans all economic levels, indicating that even higher-income households are feeling financial pressure despite lower inflation and four interest-rate cuts over the past year,” concludes Andrew Fulton, director at Eighty20.
