speed point, card,transaction,swipe.Photo by Simphiwe Mbokazi

Consumers have been unable to reduce their credit card debt levels since 2010, and as soon as they make the minimum repayment every month, it is spent again, the TransUnion consumer credit index (CCI) released yesterday showed.

While some consumers have been deleveraging their personal loans, the use of revolving credit remained relatively high in South Africa, with just over 50 percent accessed through card facilities, the credit bureau said.

This, and resorting to consolidation loans, was the reason the personal loans deleveraging had almost made no difference in improving households’ financial health, TransUnion chief executive Geoff Miller said.

“They should be deleveraging on personal loans because there is a payment schedule there but, then, there is an increase in defaults.”

The CCI showed that consumer loan defaults remained steady in the fourth quarter of last year compared with the third quarter but continued to rise by 8 percent year on year.

The defaults might have been steady on a quarterly basis but TransUnion pointed out that it was no cause for celebration as the non-payments came from a high base and the index was still reflective of defaults rising rather than falling.

In the first and second quarters of 2013, consumer account defaults had increased by 13 percent year on year.

“Now there are changing circumstances and clearly there will be individuals that are barely making it through now.”

Miller said given the Reserve Bank’s decision to increase interest rates and the petrol price rise taking effect next week, TransUnion expected the CCI to remain where it was possibly for the whole of the first half.

The CCI increased to 47.2 points in the fourth quarter of last year from a revised 46.1 in the third quarter, indicating consumers’ credit health deteriorated, albeit at a slower pace.

It is a unique indicator of consumer credit health based on a 100-point scale. A score above 50 indicates improving credit health while anything below 50 is representative of a deterioration.

Miller said even though the index might not go down to the lowest levels, it did not mean the situation was not getting worse from one quarter to another. However, the CCI was less sensitive when it was already in stressful levels.

“The fact that it went from 46 to 47 doesn’t mean consumers are better off than in the previous quarter. And given these rates hikes and the inflationary stuff coming in now, we don't see the credit health of consumers improving.”

He said although the interest rate hike was going to affect individuals who had mortgage and vehicle loans, the inflationary increases would also push those consumers making use of unsecured loans off the edge as many were already on the bridge.