The Experian Data Insights Check-In brings you key insights based on the Q2 2022 Business Debt Index.
Experian’s BDI
The Experian Business Debt Index or BDI report is an indicator of the overall health of South African businesses as it measures the relative ability of businesses to pay their outstanding creditors on time.
This index incorporates bureau-sourced debtors payment profiles as well as a range of macroeconomic variables.
Our analytics experts have extracted key highlights to give you a good understanding of the current trends we’re seeing in the market.
Short and to the point, these key trends help you better understand the overall health of South African businesses.
Get the Q2 2022 BDI Report for a more detailed view of the overall health of South African businesses.
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Experian Data Insights Check-In – Q2 2022 BDI Key Insights
8-minute read
The Experian Data Insights Check-In brings you key insights based on the Q2 2022 Business Debt Index.
Experian’s Q2 2022 BDI key insights
In this edition, our analytics experts share key trends and new developments in South Africa’s credit environment and the economic environment and share key insights from market views maintained in the bureau.
The Experian Business Debt Index (BDI) combines macro-economic metrics which includes GDP, interest rates and inflation and considers both local and US measures, with Bureau metrics from the debt age ratios, to provide a view on prevalent business conditions in South Africa.
The metric is demeaned and standardized, so that the BDI value is distributed around zero. A positive BDI signifies ‘Improving business conditions’, whilst a negative BDI indicates that business conditions are deteriorating. The bureau metrics provide a view on the degree to which debtors are overdue on agreed payment terms for invoiced amounts and are referred to as ‘debt age ratios’.
As expected, the Q2 2022 BDI showed a Q-o-Q decline, moving down from 1.438 to 0.856. This significant drop was principally driven by intensified electricity load shedding in June 2022, which caused a slump in South Africa’s GDP.
Other factors contributing to this GDP slump included the floods that occurred in KwaZulu-Natal as well as another repo rate increase that was announced in May.
From a sectoral perspective, we only saw 0.1 or less index point movements for 7 of the 9 segments, with the only meaningful movers being
- Agriculture: Down from 0.4 to 0.11 and
- Finance: Up from 1.18 to 1.55.
Keep in mind, though, that in all sectors, the BDI remained positive.
Agriculture Sector Deterioration
In the case of Agriculture, the deterioration observed can be explained by the negative impact of the KwaZulu-Natal floods as well as the harbour facilities being disrupted by labour strikes. An outbreak of foot and mouth disease also impacted on this sector.
These events all contributed to the significant deterioration in Agriculture GDP seen in Q2 2022 – in fact, the Agriculture GDP fell by over 20% Y-o-Y.
Financial Sector Improvement
On the other hand, the improvement in BDI observed for the financial sector, can be explained by the continued upward momentum in GDP for this sector, growing 4.7% Y-o-Y in Q2.
This performance has been driven by a great demand for credit – given the cost-of-living crisis faced by both households and businesses. Rising interest and inflation rates, will however make it increasingly difficult for debtors to honour their debt commitments.
Debt Age Ratios
Debt age ratios are the component of the BDI that is based on the payment profile data we hold and maintain on the bureau.
There are two such ratios computed and incorporated in the BDI:
- 30-60 day debt age ratio and
- 60-90 day debt age ratio
These ratios are calculated by taking the total overdue amount, either 30-60 or 60-90 days, and expressing that as a percentage of the not-overdue amount at the previous time. So, for 30-60 days, it would be the not-overdue amount the prior month, and for 60-90 days it would be 2 months prior.
Thus, these ratios represent a metric of the distress businesses are facing in general, when it comes to honouring the payment terms they committed to.
For both the 30-60 and the 60-90 day ratios we saw a significant increase (i.e. deterioration) in the last quarter. For 30-60 days, we saw the ratio almost doubling from 19% to 36.8% and for 60-90 days, more-than doubling from 5.7% to 11.9%. This could have been driven by the cost pressures businesses are experiencing due to rising interest rates as well as the income-pressures brought on by the load-shedding and flooding in KwaZulu-Natal.
Debt Age Ratios for SMEs
The debt age ratios for SMEs, small business, although also facing more tough debt conditions in terms of meeting debt commitments – compared to the previous quarter – is less affected than their bigger business counterparts. We saw relatively small increases in Debt Age Ratio’s for SME’s, with
- 30-60 day debt age ratio for SME’s increasing marginally from 32.4% to 32.8%
- 60-90 day debt age ratio for SME’s increasing slightly more meaningfully than the 30-60 day metric, from 11.4% to 12.5%.
SMEs remain under difficult conditions in the wake of the floods and load shedding.
Looking forward to Q3, a mild rebound in the index is expected – primarily based on the anticipated improvement in the domestic economic growth rate – up from the dismal 0.6% in Q2 to1.22% in Q3.
The impact of the KwaZulu-Natal floods is expected to have faded by Q3 and that the Q3 BDI will be calculated off the low base observed during Q3 in 2021, where South Africa was grappling with widespread looting and unrest.
Conclusion
Dampeners on the BDI improvement will include the continued domestic load-shedding as well as the prevailing labour strikes at harbours.
Unfortunately, expectations beyond Q3 for the BDI are not positive. Even more steep increases in domestic interest rates in Q3, are expected to trickle through to the BDI in subsequent quarters.
Get the Q2 2022 BDI Report for a more detailed view of the overall health of South African businesses.
Download the BDI Report
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Watch our video in which Ans takes you through the various graphs that bring these data insights to life.
