South African consumers will have to establish sound financial habits to get through tough times, as the latest Experian CDIx report showed that consumers were under increased financial pressure.
The Experian Consumer Default Index (CDI) showed a quarter-on-quarter (Q-o-Q) deterioration from 3.66 in September last year to 3.93 in December last year. This indicated that South African consumers remained under financial pressure.
Jaco van Jaarsveldt, Head of Commercial Strategy and Innovation at Experian Africa, said last quarter, they reported that the September 2022 CDI results suggested a return to the pre-Covid trajectory of long-term deterioration.
“This quarter, the results seem to substantiate that outlook. Overall, this return to the former trend of long-term deterioration, although expected, has likely been expedited by the rapid increase in living expenses experienced by South African consumers,” van Jaarsveldt said.
This drastic short-term deterioration in the composite CDI is said to be especially concerning when considering that the last quarter typically signified only the start of the seasonal deterioration in CDI, suggesting that the CDI can be expected to deteriorate further in the first quarter of this year.
Year-on-Year (Y-o-Y), the composite CDI deteriorated from 3.52 to 3.93, a relative deterioration of 11%.
Experian Africa said that of further concern was the worse-than-expected GDP for the last quarter of last year, which saw a 1.3% contraction quarter-on-quarter during the period. It said that consensus forecasts among leading economists suggested a further contraction in the first quarter of this year, suggesting that the South African economy might be heading for a recession.
All the product-specific CDI metrics also deteriorated Y-o-Y, most notably the Retail and Personal Loans portfolios. The worst relative deterioration in CDI was seen for Personal Loans, where there was a Y-o-Y deterioration from 7.54 in December 2021 to 9.27 in December last year.
From a market-exposure and credit-active population penetration perspective, Experian noted that higher affluence consumers have become increasingly dependent on Personal Loans to bridge the gap in their monthly expenses.
The last quarter of last year showed that deterioration in CDI terms was observed on the two extreme ends of the consumer landscape, which is the most affluent and the least affluent consumers. The biggest relative deterioration was seen for FAS Group 1 (Luxury Living). Although these consumers were typically highly affluent(and generally represent the lowest credit risk), their CDI had been under severe pressure, particularly since the pandemic.
The mid-affluence FAS Groups 3 (Stable Spender) and 4 (Money Conscious), the consumers of typically mid-range affluence, generally showed minor Y-o-Y change in Composite CDI.
For FAS Groups 5 (Laboured Living) and 6 (Yearning Youth), Experian said it had seen a sustained increased level of new business since the last quarter of 2021, giving rise to increased CDI levels over the last nine months.
The index noted that although there has been a temporary slowing in CPI and fuel cost increases, the cost of living remains on an upward trend-particularly regarding food and non-alcoholic beverages.
The increased cost of living leads to decreased affordability for consumers and the likely increased inability of consumers to meet debt obligations.
Experian said that according to data from the National Credit Regulator, the appetite for consumer credit soared to record levels in the third quarter of last year. Approval levels had, however, remained stable, giving rise to a significant contraction of approval rates.
Experian saw the consumer credit approval rate moving down from 33.3% in the second quarter of last year to 30.5% in the third quarter. It said this highlights the fact that consumers were turning to credit to make up for the shortfalls in their cost-of-living expenditures.
Van Jaarsveldt said they encouraged South Africans to keep managing their budgets carefully, creating sound financial practices to navigate this difficult economic climate.
“It is also important for consumers to monitor their credit usage carefully and routinely check their credit reports to make sure that they represent a true reflection of their credit history. Ongoing monitoring and, where needed, corrective action is critical to ensure a healthy credit profile is maintained,” van Jaarsveldt said.
Abigail Moyo, spokesperson of the trade union UASA, said that following the 1.3% gross domestic product (GDP) contraction in the fourth quarter last year, South Africa’s economic position was worrying, indicating continued tough times ahead.
“Despite many demands and call-outs, the situation is worsening. UASA encourages small and medium enterprises (SMEs) and other business owners to strive for growth. A strong, sustainable small business sector will create more job opportunities and may be the gateway to a better life for many unemployed workers,” Moyo said.
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