THE rate of people who defaulted on their loans for the first time decreased in the second quarter of this year, according to the Experian South Africa’s Consumer Default Index (CDI).
Although consumer debt remains at R1.9 trillion, the index improved from 4.33 in March to a reading of 4.03 in June. The improvement was attributed to the stringent lockdown criteria imposed 12 months prior, resulting in significantly reduced credit extension and thus an expected improvement in the overall CDI performance.
Experian Africa chief decision officer Jaco van Jaarsveldt said they had seen new business volumes decrease since the onset of the Covid 19 pandemic, thus reducing the population from which first-time defaults stemmed.
“While we have seen the demand for credit improve to pre-Covid levels over the past 12 months, the supply remains constrained due to the continuous conservative lending criteria imposed by most lenders,” said Van Jaarsveldt.
At 4.03 in the second quarter this year, the year-on-year CDI was tracking lower than the all-time high of 5.68 observed in the same period last year, following the initial level 5 lockdown that was imposed on March, 27, 2020.
According to Van Jaarsveldt, the CDI improved year-on-year across all products, most predominantly home loans, which improved from 2.90 to 1.83.
“Home loans accounted for more than 50 percent of the composite CDI and as such was the driving force behind the improvement, supported by improvement in all the other banking and retail products.”
The Experian Consumer Default Index (CDI) is designed to measure rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts.
Over the past year, Financial Affluence Segmentation (FAS) Groups 1 and 2 have exhibited the least significant improvement in (CDI percentage change).
Van Jaarsveldt said since the onset of Covid-19, they again see the most affluent consumers benefiting least from the improvement in CDI.
“There was a noteworthy impact on Luxury Living group as they are highly exposed to secured credit resulting in a relative CDI improvement of 22 percent, moving from 3.85 in June 2020 to 2.99 in June 2021. The Aspirational Achievers group, also highly exposed to secured credit, saw a CDI improvement from 4.95 in June 2020 to 3.68 in March 2021 which is also relatively modest, compared to the improvement observed for less affluent FAS Groups.”
The Yearning Youth group, which made up about 16 percent of the South African population, saw the greatest relative CDI improvement from 21.61 in June 2020 to 12.63 in June 2021 (42 percent relative CDI change). Their exposure to secured credit was negligible, below 1 percent.
However, exposure to unsecured credit, particularly retail loans, was more substantial at 6 percent. The significant improvement in CDI in this period this year was said to stem from levels of credit granted in particularly in the retail industry, where many providers opted for more stringent lending criteria along with the impacts of the hard lockdown criteria at the beginning of the pandemic.
Women constitute just more than half of the South Africa adult population. However, women represented just more than a third of the market when looking at the rand value of their exposure. This was attributed to, at an individual level, women typically taking on less debt than their male counterparts did.
Women were particularly under-represented in secured lending products with regards to consumer numbers and market exposure. But women accounted for almost two-thirds of the market. both in volume and value, with regard to retail loans.
When comparing the distribution of product holding between men and women, Experian Africa again saw that women made substantially more use of retail loan products than their male counterparts, with roughly half of the female consumers on the credit bureau having retail loans compared to 31 percent of males.
The value of these loans was only a fraction of the banking loans, mainly secured lending like home loans and vehicle loans. As a result, retail loans only constitute 3 percent of the total exposure of women in the South African market compared to the 1 percent of men. Conversely, 46 percent of women’s exposure was in home loans, while 55 percent of men’s exposure was in home loans.
Van Jaarsveldt concluded that in general, South African women exhibited a lower CDI than the total SA credit market did.
He said this might be because women had less exposure in the credit market and thus had more manageable monthly debt commitments to keep, but it also might point towards them putting a higher priority on meeting their debt obligations.
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