Johannesburg - South African households’ cash flow situation might be as challenging as it was during the recession in early 2009, credit bureau company TransUnion said yesterday.
Household cash flow has turned sharply negative since the second quarter, as food inflation and other expenses have risen while a number of sectors have shed jobs.
The credit information managing company, which released its consumer credit index (CCI) for the third quarter yesterday, said the index was testing the lows last seen in mid-2008, when it averaged 43 points.
In the quarter to September, it declined to 43.4 from 44.8 in the previous quarter. The latest data reflected a near three-year downtrend in the index from its highs of 63.6 in the fourth quarter of 2010.
The CCI has now been below 50 for a full year. A reading above 50 indicates improving credit health, while a score below 50 shows deterioration.
TransUnion said there was an ongoing rise in the number of consumer accounts that were in arrears for three months or more, with the total growing 13 percent year on year.
Household debt service costs should have come down with the low Reserve Bank repo rate, but TransUnion chief executive Geoff Miller pointed out that the majority of consumers who were under financial stress accessed unsecured credit, where annual interest rates averaged between 20 percent and 30 percent.
But credit categories for higher income groups such as mortgage and vehicle asset finance were showing strong signs of a recovery in defaults.
While more consumers were unable to repay their debts, Miller said the demand cycle for unsecured lending had become extremely robust.
“The number of applications both banks and microlenders have been processing has had a double-digit growth.”
He added that with the rise in defaults, this demand might suggest another form of distressed borrowing not accounted for in credit card utilisation.
As credit demand grew again, approval rates by lenders slowed further, potentially opening a gap for unregulated credit products.
“If consumers get fatigue because they continue to get rejected, there is a potential for them to look elsewhere for short-term cash needs.” - Business Report