South Africans are using more credit in an attempt to help make ends meet. The TransUnion Q1 2019 South Africa Industry Insights Report shows that outstanding balances across all major credit categories have increased when compared to the same time a year ago.
The TransUnion South Africa Industry Insights Report (IIR) is an in-depth quarterly research report which analyses almost all the country’s active credit files to provide a snapshot of how consumers are making use of and servicing their credit. It measures credit originations (new accounts opened), balances (outstanding total and average lending balances) and delinquencies (accounts in payment arrears) across secured (e.g. home and vehicle loans) and unsecured (credit cards and bank and non-bank loans) credit.
South Africans’ credit card balances, bank and non-bank personal loans (which are typically used to fund household expenses) and smaller ticket purchases, grew significantly – by 6.6%, 7.2% and 11.4% respectively. In addition, more credit card accounts and bank and non-bank personal loans were opened in the last year. These increased borrowing levels are likely to be driven by current challenging economic conditions, with consumers relying on credit to supplement their incomes to meet their day-to-day financial obligations.
The growth in outstanding balances and new loans across secured credit products like home finance and vehicle purchases was very low – under 3% compared to last year. These numbers may be an indication that consumers are deferring these big-ticket purchases in the face of economic uncertainty.
Delinquencies (accounts in payment arrears) on secured products like home and vehicle loans rose for the third consecutive quarter. Despite this, the delinquency rates for secured products (home & vehicle loans) tend to be far lower than those of unsecured products like personal loans and credit cards, particularly given that lenders focus much of their originations on lower-risk consumers. Nevertheless, the steady rise in delinquencies for secured products over the past year indicates that even consumers in the lower-risk credit tiers are not immune to the current economic challenges.
Interestingly, credit cards bucked the delinquency trend, with serious nonpayment rates actually improving year-on-year in Q1, dropping significantly. This may be due to consumers protecting their credit cards in the face of economic uncertainty, in order to maintain access to their most liquid form of credit.
The magnitude of the economy shrinking caught many by surprise, but the weaknesses in other areas like unemployment and wage growth, have been putting pressure on consumers’ personal finances for some time. Inflation is still well above average wage growth, so real household income continues to fall. In these difficult economic times, credit can be a critical lifeline for consumers who may be struggling with their expenses. It’s important for lenders to continue to make credit available to consumers who may need it, but equally important that they are making prudent lending decisions, helping save consumers from finding themselves overindebted. On the other hand, it is also important for consumers to honour payment commitments to creditors so they have access to much-needed credit during tough times.