Consumer credit health deteriorated at a slower pace in the third quarter compared with the previous quarter, but South Africa was still heading for three consecutive years of declining credit health, credit information company TransUnion said yesterday.
The release of its consumer credit index showed an increase to 49.3 points in the third quarter from 48.9 in the second quarter. The index measures aggregate consumer loan repayment records and tracks use of revolving consumer credit facilities to detect distressed borrowing.
Despite the marginal improvement in the index, the report marked the eleventh consecutive quarter of credit health deterioration.
Consumer credit health is also strongly linked to employment conditions in the economy, which according to TransUnion remain negative. The labour market index for the third quarter remained close to its lowest levels since 2009, scoring below 50 points.
TransUnion chief executive Geoff Miller said: “Millions of consumers are still feeling the pressure of tight cash flow, with household cash flow levels falling to their lowest point since early 2010.”
But he added that there was a light at the end of the tunnel because as much as cash flow remained weak, it had not turned negative. “There is also some relief in the form of slightly lower inflation, which is offsetting the current poor income growth.”
TransUnion said it had observed a decline in the rate of new consumer defaults this quarter. “This is indicative of more prudent lending measures that have been put into place since 2013,” it said.
According to the National Credit Regulator, almost half of credit-active consumers have impaired credit records and 9.53 million consumers are in arrears by three months, or have judgment or administration orders against their names.
The latest Consumer Credit Market Report also showed that the total outstanding gross debtor’s book of consumer credit for the quarter to June was R1.57 trillion, with the bank’s share of credit sitting at 81.3 percent.
The distressed borrowing indicator slowed down in the third quarter. However, it still showed that households were being forced to access more credit to supplement their budget with credit cards and store cards.
“Households are currently using 50 percent of their credit limits, up from about 40 percent in 2007. Use of revolving credit is rising at a rate of approximately 3.5 percent year on year,” Miller said.
The 2014 Finscope survey released this week showed that 4.9 million people were displaying signs of over-indebtedness, up from 4.7 million last year. It also revealed that use of personal loans from banks was on the increase with 1.6 million people in 2014 compared with 1.2 million in 2013.
The rise in the repo rate in July from 5.5 percent to 5.75 percent had a negative affect on consumer’s debt affordability. This also led to debt servicing costs rising by around 6.5 percent across the board for loans linked to prime.
The net results of this increase was that households that were barely able to service their debt obligations were finding it more difficult to meet repayment commitments and afford monthly expenses, Miller said. He added that the index signalled slow or no real wage growth and retrenchments. These factors pointed to difficult credit market conditions in the foreseeable future.