Household debt index declines

"Our FNB household debt-service risk index... indicates that the vulnerability of the country's household sector when it comes to being able to service its debt in future declined further in the second quarter of 2014," FNB household and property sector

strategist John Loos said in a statement.

A decline in the index means reduced vulnerability and risk in the sector.

 
The release of the SA Reserve Bank's Quarterly Bulletin onTuesday gave the second quarter picture of household sector income and indebtedness. The FNB index is calculated from this data. 

"From a revised first quarter 2014 index level of 5.54 (on a scale of one to 10), the second quarter saw a further noticeable decline to 5.33. This continued a declining trend since the 6.56 high recorded in the third quarter of 2012," Loos said. 

The level of the index remained above the long term (33-year) average level of 5.21, but was moving in the right direction.

"Furthermore, the index has recently exited what we deem to be the 'high risk' zone, moving down into the upper end of the 'medium risk' zone," Loos said. 

"This is a positive development, pointing to reduced household sector vulnerability to interest rate or disposable income 'shocks'."

The most recent index level was well below the 7.19 peak reached in the first quarter of 2006. 

"However, a balanced perspective is needed. The level is still far above the lowest risk level of 2.62 reached late in 1998 before the start of the consumer boom, so there is still much improvement needed."

Loos said that while debt service risk remained in decline in 2014, household credit growth still needed to remain pedestrian in a weak income growth environment. 

 

 

(File photo: Gallo images)