South African consumer credit health has stabilized, says TransUnion
The credit health of South African consumers has stabilized, according to the South Africa Industry Insights Report for the second quarter of 2021 by consumer credit reporting agency TransUnion.
The report showed that a number of trends, seen immediately after the Covid-19 outbreak over a year ago, have continued to progress with a few notable exceptions, particularly with regard to delinquency.
Although the total number of consumers participating in the credit market has not increased significantly from pre-pandemic levels (down year-over-year (year-over-year) in three of the last four quarters and remaining broadly stable year-on-year in Q2 2021 at 0.8%), the total amount borrowed as measured by outstanding balances continued to increase for all major consumer credit products.
However, as we have seen in previous quarters, this was often for very different reasons depending on the product.
Mortgage loans recorded a 15.3% increase in outstandings year-on-year in the second quarter. This was mainly due to consumers who had maintained or improved their income and access to credit and thus had been able to finance home purchases, with rising house prices contributing to the increase in new mortgage balances. In contrast, overdue credit card balances (up 10.6%) had been driven by consumers’ need to balance household budgets, maintain liquidity, and finance subsistence purchases, especially when income had been negatively affected.
In recent quarters, a general increase in delinquencies in most major categories of consumer loans had also contributed to the growth in overdue balances, with missed payments accumulating and principal amounts remaining unpaid. However, in the last quarter, with the exception of personal loans, delinquencies stabilized and decreased. Credit card balances defaults fell 50 basis points (bps) from their peak in the same period last year and in the second quarter of this year stood at 12.3% , and were at the same level as in the second quarter of 2019.
However, TransUnion South Africa’s research and advisory director Carmen Williams said consumer credit market conditions remain volatile.
“Any potential impact from recent civil unrest and peak Covid-19 cases will not be visible until the third quarter (3 quarter) data is released, but in the second quarter (second quarter) there have been notable improvements – in particular in payment defaults. It remains to be seen if this improvement can be sustained and merits close monitoring in the months to come, ”said Williams.
Default rates during the pandemic were said to have been influenced by a number of important factors, including postponements, payment holidays and other accommodations by lenders who had helped borrowers in need. A drop in new borrowing over the year since the start of the pandemic had altered the overall ratio of good and bad debt in lender portfolios. While a general increase in overall debt has been apparent, the total number of new loans and accounts has declined due to the decline in loan arrangements.
The report found that although there were improvements in most major categories of consumer credit, unsecured personal loans saw a significant increase in defaults, with personal bank loans increasing by 260 points. year-over-year basis and non-bank personal loans 700 basis points.
A higher default rate was to be expected for nonbank personal loan providers, as they had historically targeted higher risk consumers who were more likely to default and would be less resilient to lasting financial difficulties, such as those caused by the pandemic.
Williams said finding and funding resilient consumers becomes even more crucial during tough economic times when looking to maintain a healthy portfolio default ratio.
“The key is to stimulate new credit growth by finding good consumers, who are likely to meet lender’s target thresholds and who, in turn, can help maintain a good bad / good ratio for longer lending growth.” long term. “