Credit shows signs of stability

Consumer credit health is set to stabilise.A fully mobile device used for scanning products for transactions and concluding of sales via a credit card swipe attachment and is compatible with Smart phones. Picture: Timothy Bernard 18.03.2014

Consumer credit health is set to stabilise.A fully mobile device used for scanning products for transactions and concluding of sales via a credit card swipe attachment and is compatible with Smart phones. Picture: Timothy Bernard 18.03.2014

Published Jan 25, 2015

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Consumer credit health might be stabilising for the first time in three years.

However, this did not signal a positive turnaround as macro-economic factors continued to prevent improvement to the financial situation of consumers, the credit information company TransUnion said last week.

The release of its consumer index showed an increase from a revised 49.9 points in the third quarter to 50.1 points in the forth quarter of last year, which was above the break-even level for the first time in nearly three years.

Despite this, TransUnion said household cash flows remained under pressure, despite a nominal improvement as a result of softer inflation pressure and fuel-price relief.

“While fuel-price relief is important for consumers, it should be noted that the job market remains weak and that a weak currency not only offsets a large portion of the international oil price decline, but also raised the price of many imported products and equipment,” TransUnion said.

“While lower petrol and diesel prices by themselves could provide a form of tax relief to households and firms, acute electricity shortages mean that the impact and related costs of load shedding will partly offset this,” Geoff Miller, the chief executive of TransUnion, said.

The TransUnion consumer index measures aggregate consumer loan repayment records and tracks use of revolving consumer credit facilities to detect distressed borrowing.

“While the figures show the index rising above 50 for the first time in several years, factors such as inflation, ongoing strikes, a weak job market and an unstable rand are mitigating any financial improvement,” Miller pointed out.

He added that as a result, TransUnion had seen only marginal movement in a shallow trajectory, “indicating continued uncertainty in the consumer credit industry”.

 

Credit limits

Currently, households are using just over 50 percent of their credit limits, up from 40 percent in 2007.

Revolving credit utilisation rose at a rate of about 2.7 percent year on year in the fourth quarter, driven by both credit card and revolving store cards.

Overall, the household cash flow indicator showed budgets remained relatively fragile and highly vulnerable to currency, interest rate and product price swings, Miller said.

The Credit Bureau Monitor has reported that, for the quarter to September, of the 22.50 million credit-active consumers, 10.05 million, which is 44.7 percent, have impaired records and were struggling to service their debt.

He said lower inflation early this year might well help this more positive trend continue for a while longer.

The index also showed that consumer borrowing and repayment behaviour was mixed.

The decline in the year-on-year rate of new consumer loan defaults halted in the fourth quarter, suggesting that the recent phase of improving repayment may be over.

Repayment behaviour was improving fastest in the personal loans, furniture and appliances. However, vehicle impairments were up by nearly 12 percent year on year, followed by non-clothing revolving store cards up nearly 8 percent year on year.

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