There has been significant growth in new business for clothing accounts, up 36.4% year-over-year, in the first quarter of this year, according to TransUnion South Africa Industry Insights Report, released yesterday.
The report for the first quarter of this year, which tracks consumer credit trends across key credit products
Clothing account originations increased by 36.4% year-over-year in the first quarter of this year, although the average limit on new clothing accounts only increased by 1.2% over that time. Outstanding balances increased by 6.8%, supported by new business growth, while average balances increased by 6.1%.
Weihan Sun, a director of financial services research and consulting at TransUnion Africa, said they saw significant growth in new business for clothing accounts, just as there was a notable increase in outstanding balances, likely driven by existing account holders leveraging their accounts more frequently as a result of higher prices driven by inflation.
And in the face of economic adversity, South African consumers have shown increased demand for various forms of credit, from clothing and retail revolving accounts and credit cards, according to the report.
The South African economy continued to weather the storm during thus year’s first quarter, with gross domestic product growth of 0.4% assisting the country to narrowly avoid a technical recession following a -1.3% decline in the last quarter last year.
However, within the same quarter the South African Reserve Bank shocked the market with a further 50 bps increase, bringing the prime rate to 11.25% - the highest level since 2009.
Serious delinquency rates across major unsecured lending products improved during the quarter. This as lenders, reacting cautiously to this heightened credit usage, had improved their risk management practices, the report said.
New retail revolving accounts surged with a 34.7% increase y/y this period and the growth in new accounts aligned to the growth in retail sales, particularly for the clothing, footwear, textiles and leather goods sector, which grew by 6.3% compared to the same period last year.
There was a continued shift towards credit being the preferred means to finance retail purchases as economic constraints continued to pressure consumer wallets, the report found.
New account limits increased across the risk tiers, with a shift in the risk distribution in the last quarter where subprime account originations saw a lower share of originations, down 5.4%. Lower risk account originations had higher limit assignments and hence the overall new account limits rose by 2.5%.
Consumer demand for new credit cards remained robust, with origination volumes having increased by 27.1% compared to the same period last year. Average limits on new cards declined marginally (0.8%) from the prior year. Originations increased across all generations, with Gen Z consumers (born 1995 to 2010) accounting for 18.9% of the new cards issued, an increase of 3.4% y/y.
The number of originations to subprime consumers decreased by 10.3%, while originations to super prime consumers increased by 8.6%. Subprime and super prime borrowers were also granted lower limits than in the previous year, down 7.8% and 5.7%, respectively. This indicated that lenders were continuing to support the demand for new credit cards, while managing their exposure more cautiously, the report said.
Outstanding credit card balances increased by 9.2% and average balances increased by 7.6%, with the greatest increase in balances, of 10.1%, in the super prime risk tier. These increases were potentially attributed to sizeable growth in new business, as well as consumers leveraging their existing card facilities.
In addition to consumers leveraging their cards to pay for everyday purchases, lenders had increased card lines for existing consumers by 4.7%.
Non-bank personal loan originations surged by 24.9%, although the average new loan amount was 11.2% lower than the same period last year, with outstanding balances having decreased by 8.2% and average balances having decreased by 12.8%.
South Africans’ increased reliance on credit comes at a time when the country avoided a technical recession, despite the effects of its current energy crisis, high unemployment, and the third lowest consumer confidence rating since 1993.