Personal loans showed the biggest increase of first-time product defaults Retail loans introduced to index, show improvement. Photo: Ian Landsberg/Afrcan News Agency (ANA)

CAPE TOWN – Consumer debt in South Africa increased to R1.72 trillion in outstanding debt, according to the latest Consumer Default Index (CDI), released by Experian South Africa.

The report released on Wednesday stated that the overall CDI increased from 3.76 percent in the second quarter to 3.93 percent in September, mainly due to an overall deterioration in first-time defaulters specifically across unsecured banking products, such as credit cards and personal loans.

Jaco van Jaarsveldt, Decision Analytics Head Consulting and Marketing Services at Experian SA said the deterioration in the unsecured banking product performance could be attributed to the increased demand for personal loans specifically, which were more broadly accessible across the various consumer market segments.

“Due to the tougher economic climate, more consumers are accessing personal loans and available credit card facilities to support their day-to-day expenses,” said Jaco van Jaarsveldt, Decision Analytics Head Consulting and Marketing Services at Experian South Africa.

Personal loans showed the biggest increase year on year from 8.03 percent in 2018 to 8.84 percent in 2019 of first-time product defaults amounting to R6.2 billion, according to the report. First-time credit card defaulters similarly increased from 6.58 percent to 6.63 percent year on year amounting to R2.2 billion in balances defaulting for the first time since opening.

Retail loans performance, a new addition to the Experian CDI, has seen a significant improvement in the rate of first payment defaulters from 14.14 percent in 2018 to 12.77 percent in September 2019.

Reached for comment Stephán Engelbrecht, a fund manager at Anchor Capital, said the South African consumer, especially the lower income consumer, was under significant strain due to various factos such as the weak economic climate, rise in fuel prices or general rise in the cost of living. 

“Year-on-year real wage growth per worker turned slightly negative in the third quarter, with private sector real wage per worker declining 2 percent from a year ago. This is despite South Africa experiencing its lowest levels of inflation in a decade,” said Engelbrecht.

He noted that according to the September BA900 report released by the SA Reserve Bank, lenders had increased the total retail loan book by approximately 7 percent from a year ago. This was still very conservative credit growth and could not really explain the increase in defaulters as borrowers usually started to default after three to sx months.  

“The greatest proportion of advances growth came from unsecured credit (credit card, Overdrafts and Personal Loan) with asset backed loans (mortgages and vehicle finance) growing at a slightly slower pace.

“Most lenders have (according to the management of these institutions) remained very vigilant to whom they extend credit. Credit loss ratios for the banks are still at cyclically low levels after a period of very benign credit extension to households over the past three years,” said Engelbrecht.

“This trend can be attributed to the 2018 pre-festive tightening in credit lending criteria implemented by most retailers which is now yielding results as overall industry default rates show marked improvements,” said van Jaarsveldt.

Experts have advised consumers to exercise extreme caution when it comes to spending, especially on credit.

Tlalane Ntuli, co-founder and chief operating officer at credit life insurance specialist, Yalu, said getting all the right gifts and hosting a fantastic, relaxed Christmas week cost money and with the struggling economy, a lot of South Africans used credit to manage the financial challenge.

“Many of us rely a lot on credit over the festive season to meet all the demands on us. Regardless, it’s really important for everyone within the family to understand whether there are insurance policies in place for these loans, and how easy it will be to claim should the need ever arise,” said Ntuli.

Home loan originator BetterBond advises home-owners who are fortunate enough to receive a 13th cheque or a bonus, to use at least part of it to reduce the capital portion of their home loan.

Carl Coetzee, BetterBond chief executive, said with interest rates remaining well above the rate of inflation, the best “present” consumers could give themselves this holiday season is to reduce their debt load.

“Reducing your outstanding loan balance will also help create a cushion against any future interest rate increases, and give you more room to manoeuvre if you ever need to borrow against your home to pay a child’s university fees, for example, or to cover a medical emergency,” he said.

The Experian CDI is designed to measure rolling default behaviour of South African consumers with home loans, vehicle loans, personal loans and credit card accounts.

BUSINESS REPORT