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RSA RETAIL SAVINGS BONDS. Presenter: | National Treasury | July 2012. OVERVIEW. Household debt Households to save What Discouraged Households NT encourage Savings RSA Retail Savings Bonds RSA Retail Target Groups Main Features Savings Products on Offer. OVERVIEW. Rates
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RSA RETAIL SAVINGS BONDS Presenter: | National Treasury | July 2012
OVERVIEW • Household debt • Households to save • What Discouraged Households • NT encourage Savings • RSA Retail Savings Bonds • RSA Retail Target Groups • Main Features • Savings Products on Offer
OVERVIEW • Rates • Distribution Channels • RSA Retail Bond Stats • Impact made
Household debt in South Africa: an overview • Growth in debt has gone through 3 distinct phases in the last decade: Boom in housing market NCA, recession Boom in unsecured credit market New credit extended by category (R million) Banks account for majority of lending – and focus on those with salaries Informal credit providers (e.g. mashonisas) focus more on lower income groups – but hard to get exact figures on total loans extended (NCR data is all for registered credit providers)
Household debt in South Africa: an overview Share of household debt, 4Q2011 • South African households owed R1,3 trillion by December 2011 • R790bn in mortgages (60% of total) • R250bn is secured credit (20% of total) (mostly cars) • R140bn in credit facilities (11% of total) (credit cards, store cards and overdraft facilities) • R113bn in unsecured credit (9% of total) • Equivalent to 75% of disposable income (after taxes and social grants) • Down from 80% in 2007/8 • South Africans hold debt across the board • In rand amounts, richer households are likely to hold most debt • The most widely held form of debt seems to be store cards Source: NCR Household debt to disposable income, 1970-2011 Source: SARB
Is unsecured lending a bubble? Short answer is no 1) Bank balance sheets look ok • Loans in arrears relatively stable (about 5% of total loans) • Unsecured credit only 11% loan book • Banks have managed riskier unsecured credit by concentrating loans to higher income individuals (who they expect will keep their jobs and be able to repay) • Bank rejection rate quite high (about 45%) 2) Consumer affordability look ok • Unsecured debt accounts 6.2% of household disposable income • Total loan repayments 12% of income now (16% in 2008) BUT policy makers paying careful attention • Sharp increase in growth in unsecured credit • Unsecured credit now 25% of new credit extended – from 8% in Q1 2007 • Consumers that are indebted are struggling with debt • 1 in 4 credit active consumers has impaired record • Many consumers may be taking on too much debt
WHAT IS TOO MUCH DEBT? • “I think carefully before undertaking a purchase” • How much will this cost me every month? • How much will this cost me in the long run? • But total costs rise • 5 year loan of R587 per month means you will pay nearly three times the value of the original loan • Every rand spent on interest is a rand not spent on saving, repaying other debt, investing for the future Trend toward longer loan repayments means monthly repayments are lower
WHAT IS TOO MUCH DEBT? “I can pay for this – it’s just R250” • But hard to keep track of all expenses! • And we are often unrealistic about what income we will get next month BUDGETING • Very few South Africans know how to draw up a budget • This reduces your control of your finances “I don’t care about the cost – I need this now” • South Africans don’t shop around – they want credit fast • Fine print can have a big impact on your total costs • When you buy insurance with your debt is it covering you for the right risks?
Spending Borrowing Saving Insurance THE FINANCIAL DECISION DIAMOND “Saving is not a priority for me” “I feel good when I spend” “I prefer to live for the moment” “If i couldn’t afford it, the bank wouldn’t offer it!” “I make the minimum payment on my credit card” Every choice made impacts your choices for the future Borrowing can temporarily offsetincome constraints – but can never remove them Borrow to grow your wealth (e.g. studying) - not spend your future salary Income and wealth constrain choices Savings is not easy – but it can have a big impact over the long run on raising wealth Adapted from Collins, et al (2007).
HOUSEHOLD SAVINGS/CREDIT Investment Amount: R3 000.00 Investment Date: 2012/06/26 Interest Option: Capitalised Investment Term: 2 Year 3 Year 5 Year Interest Rate: 6.75% 7.00% 7.50% Total Interest: R427.23 R689.20 R1 337.04 Capital & Interest: R3 427.23 R3 689.20 R4 337.04
HOUSEHOLD SAVINGS/CREDIT Investment Amount: R5 000.00 Investment Date: 2012/06/26 Interest Option: Capitalised Investment Term: 2 Year 3 Year 5 Year Interest Rate: 6.75% 7.00% 7.50% Total Interest: R712.04 R1 148.67 R2 228.40 Capital & Interest: R5 712.04 R6 148.67 R7 228.40
WHAT DISCOURAGED HOUSEHOLDS • Cost structure in market too high for smaller investors • Poor investment advise • Products not customised to the needs? • Declining income • reason for the decline – falling wage earnings driven by lack of employment creation • Higher income groups easier access to credit
IMPROVING SAVINGS BY NATIONAL TREASURY • Encouraging long term retirement savings • Encourage savings through tax breaks in medium term • Increasing financial literacy • Improving savings products on offer • Helping households manage credit exposures
RSA RETAIL SAVINGS BONDS • National Treasury introduced RSA Retail Savings Bonds in 2004 to create awareness of the importance to save; • Diversify the financial instruments on offer to the market; and • Target a new source of funding for Government
RSA RETAIL TARGET GROUPS • Target – Living Standard Measurement (LSM 4-9) • Targeting 11 million South Africans
MAIN FEATURES • No fees, simple, secure and easily accessible • Only RSA citizens and permanent residents • Valid RSA bank account • Children and adults may buy • Must have a valid SA ID number • May nominate beneficiaries • Backed by the full faith of Government
SAVINGS PRODUCTS ON OFFER FIXED RATE RETAIL SAVINGS BONDS • Rolling maturity 2-year, 3-year and 5-year • Offers fixed rate until maturity • Invest between R1 000 to R5 million • Interest payment option: semi annually, re-invest or monthly (only>60years)
SAVINGS PRODUCTS ON OFFER INFLATION LINKED RETAIL SAVINGS BONDS • 3-year, 5-year and 10-year • Inflation protection for investors • Semi-annual interest payment only • No monthly or re-investment option • Invest R1000 to R5 million
WHAT IS AN INFLATION LINKED RETAIL SAVINGS BOND What you are able to buy today You’ll be able to buy the same in three/five or ten years as your investment will stay ahead of the rising costs
WHAT IS AN INFLATION LINKED RETAIL SAVINGS BOND • The value of your money will stay ahead of the rising costs • Your capital amount investment in Inflation Linked Retail Savings Bonds will increase and be adjusted every 6 months, in line with inflation • CPI -General increase in prices as announced by Statistics South Africa
RATES Fixed Rate Retail Savings Bonds – July 2012 2 years - 6.75% 3 years - 7.00% 5 years - 7.50% Inflation Linked Retail Savings Bonds (till 30 November 2012) 3 year - CPI adjusted + 1.00% 5 year - CPI adjusted + 1.25% 10 year - CPI adjusted + 2.25%
DISTRIBUTION CHANNELS • Post Office - 50.75% • Register, Apply and Pay • Internet - 19.86% • Register, Apply and Pay • Direct Marketing - 5.11% • Register, Apply and Pay at Bank
DISTRIBUTION CHANNELS • Telephone Applications - 15.36% • Register, Apply and Pay at Bank • Pick ‘n Pay - 1.79% • Pay only – Must be Registered • Roll Over - 4.41% • Reinvest investment • Restart - 2.71%
RSA RETAIL BOND STATS • Total amount invested R11.7 billion • Number of Investors 47 000 • Accounts 88 000 • Average amount invested by investor R240 759 • Average per investment R 118 785 • On average between R13 million and R15 million invested daily
RSA RETAIL BOND STATS • Different Age Groups:
IMPACT MADE • Savings environment/institutions more aware of costs • Other saving institutions take notice of the RSA Retail Savings Bonds • Very popular amongst general public • Similar products introduced by Banks and City Of Joburg (Jozi Bond) • Several countries visited NT to learn more and to implement similar products and processes
CONTACT DETAILS • Helpline number : 012 315 5888 • Website: www.rsaretailbonds.gov.za • Email: queries@rsaretailbonds.gov.za • Fax: 012 315 5675/5314