The debt levels of consumers have reached an all time high. Many are now using 68 percent of their after tax income to pay off debt, says the Reserve Bank.
The vicious interest rate increases over the past few months are pushing many consumers over the financial precipice with the number of individuals going insolvent increasing daily.
The question now being asked is how they have been able to run up such high debt without anyone blowing the whistle.
Banks, which are the biggest lenders of money, deny they are responsible.
This, despite the fact that they give unsolicited overdraft facilities, increase credit card limits without application, and exhort you to borrow more against your home to pay for other luxuries.
The Reserve Bank has become increasingly perturbed about how easily banks lend money to individuals. It recently forced banks to limit lending on home loans to 80 percent of the property's value. If you borrow more you pay a punitive interest rate.
Klaas van Wyk de Vries, a director for credit risk solutions company, Fair Isaac International, says the credit rating system in South Africa is flawed.
This is because the credit bureaux in South Africa run two different data bases a retailers database (which is checked when you apply to open a store account) and the banks' database.
"The two don't talk to each other. They also share different types of data with the bureaux."
Retailers share payment information which allows credit grantors to make informed decisions on your total profile.
While banks, says Van Wyk de Vries, share only negative information. So one hand doesn't know what the other is doing.
Alistair Ruiters, Registrar of the Usury Act, says there is a need for positive information sharing between all credit grantors to enable them to determine the level of consumer debt which is a serious concern in South Africa.
Johan Coetzee, general manager: credit and risk at Absa, says a bank does not give more credit than what it can recover, because banks lose money when you over-extend yourself.
"If we lose one R100 000 loan, we have to grant 100 new loans of R100 000 each to make up the bad debt," says Coetzee.
Housing loans are granted after set credit guidelines are followed. Banks will consider your assets and liabilities and your income before granting you a home loan, personal loan or an overdraft.
He says when you apply for a personal loan, the bank also draws a credit report.
And when you apply for a credit card, the banks use a credit scoring system to assess whether you should be a cardholder.
"What more can we do that is the basic information available on which we base our decision," says Coetzee.
Craig Rankin, senior manager: Nedcor Bank Card Division, says the bank reviews credit limits and from time to time increases these on selected accounts.
The selection is based on criteria such as your payment behaviour over a set period, the length of time you have been with your bank and the state of your account.
If you apply to have the limit on your credit cards increased,your application is carefully assessed. Applications are turned down if the bank believes you will not be able to afford repayments, he says.
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