The total outstanding balances and new account originations were higher year-over-year (YoY) across most consumer lending categories as consumers sought to access greater liquidity to finance increased cost of living expenses, according to the last year’s last quarter(Q4 2022) South Africa Industry Insights Report released by consumer credit reporting agency TransUnion.
It said that against a backdrop of continued challenging macroeconomic conditions, with Gross Domestic Product (GDP) down 1.3% in the last quarter of last year, and with the Consumer Price Index (CPI) in December increasing by 7.2% over the prior year, consumer appetite for new credit cards continued to increase towards the end of last year.
The latest analysis revealed that card originations (a measure of both demand and supply) increased by 40.1% in this period, showing growth for the sixth consecutive quarter. While lenders met this significantly higher demand, TransUnion said they remained cautious, with the average credit limit offered on new cards being 8.8% lower YoY. Gen Z consumers (born 1995 to 2010) accounted for 16.7% of new card originations in this quarter, up by 3.3% YoY.
Clothing account originations were boosted over the festive season and the back-to-school rush, with originations for these accounts surging by 59.6% YoY, pushing volumes above pre-pandemic levels. As volumes increased, the average new clothing account limit decreased by 9.0% YoY due to lenders taking a more cautious approach to growth, primarily with younger and riskier borrowers.
Weihan Sun, the Director for Financial Services Research and Consulting at TransUnion Africa said this significant increase in clothing accounts also saw retailers experience a switch in payment mechanics, with credit rather than cash bookings contributing to an increased share of their growth. “This is a clear sign that clothing accounts and other revolving credit facilities are the contributing factor to growth in the retail sector.”
The agency’s report also showed that banks were originating higher value personal loans at increasing volumes, reflecting consumers’ need for liquidity. Bank personal loan growth continued, with origination volumes having increased by 4.8% YoY, while the average new loan amount increased by 8% YoY. Overall outstanding balances increased by 11.2% YoY, and average balances grew by 5.7%. Millennials (born 1980-1994) accounted for 50% of bank personal loan originations in this period.
Non-bank personal loan origination volumes increased by 24.7% YoY, with the average new loan amount having increased by 3.8% YoY. With the continued growth momentum from this latest quarter, new business volumes for this product were now back above pre-pandemic levels (7.3% higher than the last quarter of 2019).
The home loan market was said to have remained resilient despite the high interest rate environment having affected consumer affordability, with home loan originations increasing by 8.3% YoY, and average new loan amounts having increased by 8.4%. Growth was said to be driven primarily by the upper end of the market in this period, with significant growth in sales of
properties valued at R3 million and above as buyers in this segment were generally less sensitive to rate hikes.
On Tuesday, the Pam Golding Property group said that although facing economic headwinds that included load shedding and the rising cost of living-with activity mainly in South Africa’s metro markets holding steady, one of the most noticeable trends in the residential property market was a discernible uptick in demand for luxury homes,
The group’s CEO Dr Andrew Golding said this market was defined as properties in the R10 million to R100 million price range and beyond, a sector where freehold properties, in particular, have enjoyed an increase in demand. “A recent example is a five-bedroom, five-bathroom house in Bantry Bay, Cape Town, sold by Pam Golding Properties to a German buyer for R75 million,” Golding said.
Vehicle loan originations decreased by 4.7% YoY, although average new loan amounts increased by 7.2% YoY, thereby reflecting the combination of high interest rates and higher vehicle prices. New and used vehicle prices increased by 7% and 9.1% in this period, up from 2% and 7%, respectively, in the last quarter of 2021, according to the TransUnion SA
Vehicle Pricing Index (VPI). The VPI revealed that new vehicle purchases increased by 13.0% YoY during the quarter, while used passenger vehicle sales decreased by 3.4% YoY, likely due to a lack of quality stock as new vehicle sales were depressed over the prior two years.
The agency said that with the current environment of rising interest rates and continued high inflation continuing to contribute towards higher cost of living for South African consumers. “The repo rate increased six times in 2022, resulting in a 325 basis points (bps) impact. Additional disruptions to macroeconomic recovery, such as the energy crisis and the conflict in
Eastern Europe, all contributing to the continued inflationary pressure hindering debt affordability and serviceability for many consumers,” it said.
It added that during the last quarter of last year, overall consumer-level serious delinquency (90 days or more past due) improved by 230 bps YoY to 38.5%. This improvement was said to suggest that consumers appeared to be managing their credit repayments better, in order to preserve their continued access to the liquidity that credit products provide as they anticipate continued tough macroeconomic conditions.
According to the report, while overall delinquency levels improved over the year, they remained above pre-pandemic levels of 38.3% (Q4 2019). Although consumers remain resilient, continued pressure fuelled by the uncertainty in the energy sector will likely be a source of discomfort for lenders, with many believing we are nearing a tipping point towards deteriorating performance.
Sun said while efforts in portfolio management often focus on optimising collections after delinquency, enlightened lenders have the ability to identify and focus more on borrowers in pre-delinquency states at risk of becoming delinquent, to empower consumers and prepare less costly recovery strategies. “Using a robust data framework to identify at-risk consumers at an early stage, and respond with appropriate account management strategies, can help prevent delinquencies and build loyalty among customers,” Sun said.
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