Consumer credit falls on consumer caution
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JOHANNESBURG - Consumer credit demand fell in the third quarter of the year with households under financial pressure and despite the easing of Covid-19 regulations, said TransUnion’s latest South Africa Industry Insights Report released on Thursday.
Carmen Williams, a director of research and consulting for TransUnion South Africa, said: “With the prolonged nature of the pandemic, it’s clear that the economic impact has been significant and sustained. Consumer confidence and lender risk appetites have been severely impacted, and the latest results show the changing dynamics of both the demand and supply of credit.”
Consumer confidence remained low, with a reduced appetite for new credit reflecting increased unemployment and high levels of financial hardship, the report said.
In the third quarter year-on-year (YoY) enquiry volumes fell by double digits across all the major consumer lending categories. The decline was most pronounced for credit cards, down 49 percent, and non-bank personal loans, down 29 percent.
Originations, measured by new accounts opened, also fell by double digits YoY for all major consumer credit categories. In the most recent period, the decline in volume was most pronounced for clothing accounts, down 69.4 percent, and least pronounced for credit cards, down 23.1 percent.
The report found serious-level delinquencies, which are accounts with three or more payments past due, increased across all major consumer credit categories as consumers continued to experience financial stress.
The report quoted the latest TransUnion Financial Hardship Survey in South Africa, which showed that almost four in five, or 79 percent of South African consumers had reported their household income being negatively impacted by Covid-19.
Another important factor influencing originations, and the related enquiries that lead to these approved and funded applications, was physical access to services.
Categories like personal loans, bank and non-bank, were highly dependent on people coming through the door. While selected bank branches remained open during level five and four Covid-19 lockdown restrictions, foot traffic was limited as fewer consumers ventured out. The same applied for non-bank personal loans as stores were closed.
Williams said: “With the gross domestic product (GDP) figures announced earlier this month showing signs of an economic recovery, the speed, shape and sustained nature of this recovery is what will influence market dynamics in the coming months.”
Statistics SA reported on Tuesday that South Africa’s GDP rebounded significantly and increased at an annualised rate of 66.1 percent in the third quarter, largely as a result of the easing of Covid‑19 lockdown restrictions.
Williams said, “Any recovery is likely to be protracted and the next few quarters will give us a better idea on how consumers and the economy are responding to the crisis. Life is far from back to normal and access and use of lending services is still significantly down from pre-pandemic levels.”
He said the Covid-19 pandemic has led to a number of fundamental shifts in the South Africa consumer credit market.
“It has exposed the need for lenders to enhance digital channels and re-engineer customer journeys – both for general account servicing and applications. It has also emphasised the importance of using trended data and advanced analytics to anticipate when a customer is going to face a difficulty in meeting payment obligations. By taking action early, lenders can give consumers the support they need whilst also effectively managing the risk in their portfolio,” said Williams.