SOUTH African consumers’ credit health has stabilised, according to the consumer credit reporting agency TransUnion’s second quarter 2021 South Africa Industry Insights Report.
The report showed that a number of the trends, seen immediately after the outbreak of Covid-19 more than a year ago, had continued to advance with some notable exceptions, especially when looking at delinquencies.
Although the overall number of consumers participating in the credit market had not materially grown compared to pre-pandemic levels (falling year-on-year (YoY) in three of the last four quarters and remaining broadly flat YoY in Q2 2021, at 0.8 percent) the total amount borrowed as measured by outstanding balances had continued to increase for all major consumer credit products.
However, as seen in previous quarters, this was often for very different reasons depending on the product.
Home loans recorded a 15.3 percent increase in outstanding balances YoY in the second quarter. This was primarily driven by consumers who had maintained or improved their income and credit access and hence had been able to finance house purchases, with rising home prices contributing to higher new home loan balances. In contrast, outstanding balances for credit cards (up 10.6 percent) had been driven by consumers’ need to balance household budgets, maintain liquidity, and finance subsistence purchases, especially where incomes had been negatively impacted.
In recent quarters, a general rise in delinquencies across most major consumer lending categories had also contributed to growth in outstanding balances, as missed payments accrued and principal amounts remained outstanding. However, in the latest quarter, with the exception of personal loans, delinquencies had stabilised and decreased. Credit card balance-level delinquencies were down 50 basis points (bps) from their peak in the same period last year and in the second quarter this year stood at 12.3 percent, and were at the same level as at the second quarter of 2019.
However, TransUnion South Africa director of research and consulting Carmen Williams said the consumer credit market conditions remained volatile.
“Any potential impact from the recent civil unrest and spike in Covid-19 cases won’t be seen until Q3 (quarter 3) data are published, but in Q2 (quarter two) there were some noticeable improvements – especially in delinquencies. Whether this improvement can be sustained is yet to be seen and warrants close monitoring in the coming months,” said Williams.
Delinquency rates during the pandemic were said to be influenced by a number of important factors which included deferrals, payment holidays and other accommodations by lenders had helped borrowers in need. A decline in new borrowing in the past year since the onset of the pandemic had shifted the overall ratio of good versus bad debt within lenders’ portfolios. While a general increase in overall debt has been apparent, the total number of new loans and accounts had decreased as a result of the decline in originations.
The report found that although there were improvements in most of the major consumer credit categories, unsecured personal loans recorded a significant increase in balance-level delinquencies as bank personal loans were up 260 bps YoY and non-bank personal loans 700 bps.
A higher delinquency rate for non-bank personal loan providers was to be expected as they had historically targeted higher risk consumers who were more likely to default and would be less resilient to sustained financial hardships, such as those caused by the pandemic.
Williams said finding and funding resilient consumers becomes even more crucial during challenging economic periods when looking to maintain a healthy portfolio delinquency ratio.
“The key is to fuel new credit growth by finding good consumers, who are likely to perform within lenders’ target thresholds and in return can help maintain a healthy bad-to-good ratio for longer-term lending growth.”
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