SA’s pool of high net worth individuals is shrinking

Covid-19 containment measures have hammered the South African economy, pushing many businesses to the brink of collapse and leading to widespread job losses. The problems have also been felt acutely amongst South Africa’s wealthiest citizens. BizNews spoke to Eric Enslin, CEO of FNB Private Wealth and RMB Private Bank. – Jackie Cameron

Eric Enslin on SA’s high net worth individuals:

What’s interesting – contrary to what I think a lot of people expected in the market – is that often, people think if you have a crisis Covid or debt, that the wealth market is resilient and not impacted. I think in South Africa, that’s very far from the truth. One needs to understand that in the South African context, the bulk of our private wealth market are self-employed people.

I think you can categorise people as salaried and self-employed. If you look at the client segments – the private wealth clients – tend to be in a higher age bracket as well. If you then contextualise it – even before Covid – there was lots of strain. If you think of the economic growth, lower interest rate environment, which was fast tracked with Covid.

On the impact this has had on retirees:

If you’re a retiree that lived off investment income, be it interest or dividends – and even more so dividends – because many companies have not paid dividends based on the back of Covid and have to preserve their balance sheets, etc. Suddenly that income had a big drop.

Some point last year, I did some calculations and interest rates from January to [about] the end of the year, fell more than 30% – that’s a drop of 30% in your income. It impacted the retiree market a lot.

On the impact this has had on self-employed people:

[With regards to] the self-employed market, I think from a wealth perspective, post-Covid we did some internal analysis. I think the wealth market – for the self-employed – will take the longest to recover. We think anything between nine and 13 months for clients to recover, in terms of their income. 

What we’ve seen with Covid – depending on the industries – is a lot of the wealthy clients had to go and access the personal savings, personal funding or nest eggs to actually keep their businesses afloat.

I had many conversations with extremely wealthy and successful people, that can withstand Covid. But what they had to do is gear their personal balance sheets, access personal investments to keep their businesses afloat.

On property repossessions in the luxury market:

What we try to do on the private banking and business side, because it’s never in our favour – not in any bank’s favour – despite what people might think, to go through a legal process of repossessing properties and selling it in a environment where you don’t get the values that you should.

As far as possible, we try to rehabilitate and work with clientsFortunately, I haven’t seen a notable increase in defaults from a repossession [perspective], even now versus pre-Covid.

On whether SA’s pool of high net worth individuals is shrinking:

It’s definitely shrinking. It’s a fluid number. A couple of things have influenced this and that’s a very interesting topic. So why does it actually matter? Obviously, that’s a big tax base. The bulk of the wealth clients in South Africa are self-employed. It also is a bit of a proxy of your economic growth.

If your market is growing and the bulk of your wealth market is self-employed, it tells me that there’s economic growth happening. Also a big factor of wealth is property values in South Africa and also investment. It’s a proxy of how well our investment and property market is growing.

We are predicting – at least for the next two to three years – that our wealth market will stay flat and maybe even go negative, because of investment markets, property markets and very little economic growth. If you go back 25 years [or more] a high percentage of the wealth markets with salaried people, many of them in successful parastatals, etc. Corporate South Africa and that whole scene has changed quite a bit.

I remember at some point, salaried people constituted 60% of the wealth market and it’s now under 50%.  I’m not saying it’s a good or bad thing. It may be a good thing, as self-employed people create jobs, for example. [But the] market is going backwards – not by a lot – but it’s definitely not growing.

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