Author: Professor Conrad Beyers

Growing numbers of South Africans are borrowing to meet basic living expenses rather than build wealth. Banks should prioritise productive finance and early intervention instead of encouraging deeper consumer debt. The banking sector must act voluntarily before regulators are forced to intervene. For many South Africans, debt is no longer a bridge to a better future. It has become a trap. We are sliding into a household debt crisis in which growing numbers of working people are borrowing simply to survive. Credit is increasingly being used not to buy homes or build businesses, but to pay for food, electricity and existing debt. The individual borrows again to service earlier debt. Interest and penalties leave them even more dependent on credit. This growing crisis became more apparent following the release on 30 July of the Old Mutual Savings and Investment Monitor 2026, which examines the financial attitudes of South Africans aged 18 to 65 who earn at least R8 000 per month. The report found that 40% of respondents experience considerable financial stress, rising to 47% among those earning below R30 000 per month. Half of respondents frequently worry about debt, compared with 43% in 2024. It also shows people increasingly turning to informal borrowing and gambling. The true position may be considerably worse – debt owed to family, stokvels, and unregistered lenders remains invisible to credit bureaus. Some households remain technically up to date only by taking new credit or postponing other payments. Financial collapse is often recorded only at the end of the debt spiral, long after the household has become trapped. Banking leadership should be deeply concerned. Banks cannot remain healthy while the people and businesses supporting them become more indebted and less able to withstand even a small financial shock. The system is beginning to resemble a snake consuming its own tail. Banks continue to earn interest and fees from financially exhausted households while gradually eroding the economic base that sustains them. Financial inclusion cannot mean deeper debt “Financial inclusion” has become a favourite buzzword of the industry, often presented as though poorer households are being helped simply because they receive access to more loans and financial products. But there is a version of financial inclusion that is, sadly, exploitative. The result of this “inclusion” is often that an increasing part of a salary disappears into interest and repayments, without any growth in assets or financial security. The system is not helping to build that customer’s future. This should not be portrayed as “helping” customers. Real financial inclusion should help people save, acquire assets, start businesses and become financially stronger over time. It cannot be measured merely by the number of accounts opened or loans granted. Credit is vital when it finances homes, education and productive assets. The problem arises when debt finances basic consumption without creating future economic value. \Short-termism may contribute to the debt spiral Part of the problem may lie in how banks define success. It is much easier to sell another credit product than to help create new wealth and economic activity. The first produces income for the bank almost immediately. The second takes time. If banks’ internal performance measures reward mainly what appears quickly on a financial scorecard, consumer credit will receive more attention than the harder work of building productive economic capacity. South African banks are currently competing intensely for consumer credit and short-term returns, even though the consumer market is under severe strain. The argument is not that banks should withdraw consumer credit. Credit remains essential. The concern is that, presently, too much emphasis is placed on short-term lending and too little on finance that develops wealth, assets and sustainable longer-term outcomes. Bank boards and executives should urgently examine whether their targets, remuneration structures and performance measures encourage consumer debt growth at the expense of customer resilience and productive finance. Short-termism within banks can undermine the long-term sustainability of the banks themselves. The model is wrong if it rewards an institution today for decisions that leave its future economic base weaker tomorrow. What banks can do Banks should use the information they already hold to identify distress before customers default. A viable household beginning to fall behind should be offered early restructuring, fair consolidation and lower-cost refinancing, rather than another expensive loan. Banks should stop marketing new credit to customers who are already using debt to repay debt. They should compete more aggressively on bank charges and the cost of consumer credit. Saving and reducing debt should be made at least as easy as increasing a credit limit. A larger share of finance should be directed towards viable small businesses, equipment, housing, infrastructure and other activities that generate income and employment. Lending models should place greater weight on productive potential, rather than focusing mainly on assets that borrowers already own. Banks should also change how they measure success. The relevant question is not only how many products were sold or how much credit was advanced. It is whether customers are financially stronger three or five years later. Voluntary industry agreements should be considered – with firm commitments, timelines and public measures for reducing destructive household debt and expanding productive finance. South Africa’s major banks have the capital, expertise, data and institutional strength to act. They should not wait for government to legislate before they act. Executives must recognise that it is in their own long-term interest to build a sustainable model. Possible intervention by the South African Reserve Bank and the National Credit Regulator may be needed if banks do not act proactively. This is not a demand for state-controlled banking or an attack on private enterprise. Banks are entitled to earn profits and play an essential role in the economy. It is equally important, however, that role-players point out when a market is producing an unsustainable result. The public is the foundation of the banking system. Banks must decide whether they will help enlarge the economy from which their future profits must come, or continue consuming the economic base beneath them. A snake cannot survive by eating its own tail. Conviction.co.za Get your news on the go. Click here to follow the Conviction WhatsApp channel. The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of the University of Pretoria or Conviction.co.za

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