DELINQUENCIES in South Africa’s consumer credit market remained volatile and erratic at best throughout the pandemic, according to TransUnion’s third quarter 2021 South Africa Industry Insights Report findings.
TransUnion said as the South African consumer credit market continued to experience significant turbulence, new trends were emerging, particularly in the delinquency area.
It said younger consumers entering the credit market needed to be aware of their credit health status as delinquency was highest amongst Gen Z (up 4.1 percent albeit off a lower participation base).
Most recently, macroeconomic drivers as well as social events, such as the civil unrest seen in July, had a bearing on consumer incomes and their ability to repay credit. In the third quarter 2021, the primary unsecured credit categories of non-bank and bank personal loans and credit cards recorded an increase in delinquencies year on year (y/y), up 550 basis points (bps), 520 bps and 120 bps, respectively.
TransUnion Africa chief executive Lee Naik said the volatility in the consumer credit market created by Covid-19 persisted, and with low vaccine take-up and new variants in the population, this uneven recovery was likely to continue.
“There are some positive indicators, especially when looking at originations, but the return to a truly growing, efficiently functioning credit market will be difficult to navigate for consumers and lenders alike,” Naik said.
South Africa’s record high unemployment levels and the consumer price inflation that was above average household income growth had put pressure on local consumers’ finances, the report said.
The report, which collects and aggregates information on more than 1 billion individual consumers, showed a number of emerging trends that highlighted differences in credit behaviours by consumer generations as well as divergent performance across product categories.
Originations, a measure of new accounts opened that was a function of both credit demand and supply, increased y/y across all the major lending categories, except for credit cards. The data was a comparison to a period a year ago at the onset of the Covid-19 pandemic and ensuing lockdown which drove consumers and lenders to take a cautious approach to credit.
Home loans recorded the largest percentage increase in originations in the latest data, up 149.6 percent y/y in quarter two 2021. This was said to be as much a function of comparison to a weak quarter last year as it was a reflection of increased activity in the market. In recent quarters, there had been a trend of consumers whose income had been unaffected or even increased during pandemic times entering the housing market as affordability had increased. The report showed that this trend had continued in the current quarter.
With the auto market also seeing a recovery, especially for newer used models, vehicle finance also recorded strong originations growth, up by 95.8 percent y/y. Again, this was because of a comparison to a significantly subdued quarter of activity the year before.
Non-bank loans were up 83.3 percent and bank personal loans were up by 79.6 percent also recorded strong growth.
Although credit card originations fell y/y in the latest quarter by 23.5 percent in quarter two), outstanding credit card balances continued to grow, up 14.4 percent y/y in quarter three. Throughout the pandemic, South African consumers have relied on credit cards for both the utility they provide, particularly in facilitating the growth in online transactions, and to access a flexible source of credit to meet household bills when finances are under pressure.
While y/y originations increased in most categories, the consumer credit market in South Africa was still below pre-pandemic levels. This was particularly true in the unsecured lending space (credit cards and personal loans), where the origination volumes were between 10-41 percent lower than their quarter two 2019 levels. Recovery has been more pronounced in secured lending (less than 10 percent below quarter two 2019 levels for home and vehicle finance loans), partly due to the risk profile of consumers taking out new credit, as super-prime borrowers have taken advantage of the low interest rates offered by lenders.
Younger consumers were driving originations growth as origination trends revealed the shifting generational dynamics of the market. Younger consumers accounted for much of the growth in several key categories. When looking at non-bank unsecured personal loans, Millennials (born 1980-1994) accounted for 41 percent of total originations volume, an increase of 100.6 percent y/y in quarter two 2021. A similar trend was observed in the secured category of home loans, where millennials accounted for more than half (52 percent) of all originations in quarter two 2021.
Naik said although an increase in lending to younger generations should be anticipated over time as their income and credit needs grew, what was so significant about this trend currently was that it started to reverse what was seen earlier in the pandemic, when younger generations were the first to withdraw from the market. In most categories, lending to younger generations still was not back to pre-pandemic levels, however the latest round of figures showed significant momentum in closing the gap.
BUSINESS REPORT ONLINE