Consumer debt surges to R1.9 trillion with rapid increase in defaults
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SOUTH African consumer debt surged to R1.9 trillion with R20.4 billion in value defaulted for the first time over the period January to March this year, according to Experian South Africa’s Consumer Default Index (CDI).
Experian Africa chief decision analytics officer Jaco van Jaarsveldt said on Friday that the rate of people who defaulted on their loans for the first time increased in the first quarter of this year.
“This deterioration is primarily due to the increase in business volumes during the latter parts of 2020 when strict lockdown rules were relaxed at the end of the second Covid wave, particularly for credit cards and personal loans over the Black Friday and festive season period in 2020. The combination of the economy opening up and the extended Black Friday ‘month’ have resulted in an increase in the incidence and value of first-time defaults among South African consumers,” said Van Jaarsveldt.
The index - which was designed to measure rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts - deteriorated from 4.02 in December last year to a reading of 4.33 in March 2021. This was as people struggled to keep up with their payments related to the increased economic activity following the easing of strict lockdowns towards the latter part of 2020.
The CDI tracks the marginal default rate as it measures the sum of first-time (accounts that have never) defaulted balances as a percentage of the total sum of balances outstanding.
Van Jaarsveldt said: “The decline resulted from the collective worsening for all products comprising the CDI, except home and retail loans. Home loans showed a slight improvement from 1.86 in March 2020 to 1.73 in March 2021 as consumers continue to focus on and invest in their homes as it has increasingly become a hybrid place of work. Retail loans continue to show an improvement from 13.22 in March 2020 to 11.20 in March 2021 due to tighter lending criteria imposed prior to Covid, exaggerated by very constrained trading conditions during the various periods of lockdown.”
In spite of these improvements, the CDI recorded a year-on-year deterioration, due to the deterioration in vehicle loans (3.67 in March 2020 up to 4.1 in March 2021), credit card (6.74 in March 2020 up to 8.39 in March 2021) and personal loans (9.67 in March 2020 up to 10.42 in March 2021).
According to van Jaarsveldt, the most affluent FAS groups (Family Affluence Scale) were the most negatively affected due to their high exposure to secured credit. There was a notable impact on Luxury Living group.
With an average opening home loan balance in excess of R1.2 million (54 percent owning one home and 25 percent owning multiple properties) and an average opening vehicle loan balance greater than R450 000, this group was highly exposed to secured credit resulting in a CDI deterioration from 2.65 in March 2020 to 3.42 in March 2021.
The Aspirational Achievers group was similarly exposed to secured credit resulted in a CDI deterioration from 3.55 in March 2020 to 3.80 in March 2021.
The Money Conscious Majority, which made up the majority of the South African credit-active population at about 40 percent, saw an improvement in CDI from 6.44 in March 2020 to 6.08 in March 2021.
While exposure to secured credit was low in this group (25 percent owned a property, and the average opening vehicle loan balances was approximately R160 000), exposure to unsecured facilities like personal loans and retail credit was high, with these consumers holding about 30 percent of the market in both these products. The drastic improvement in retail CDI had been the driver for the nett improvement in FAS 4 CDI.
With June being Youth Month, young South Africans aged 20 to 29 constitute roughly 27 percent of the adult population. These consumers, who generally fall in the less affluent Experian Financial Affluence Segments, only made up 3.1 million or 10.7 percent of the 29 million credit active population.
The index observed that what was more concerning was that, due to limited access to secured lending products, this segment contributed only 6.3 percent of the R1.9trl of consumer debt.
As a result of the overexposure to unsecured banking and retail products, the youth segment had shown a significant improvement in CDI over the past year, dropping in first-time default rate from 6.20 in March 2020 to 4.65 in March 2021.