Consumer credit has continued to rise over the past two quarters of this year, which means that consumers are relying more on credit cards and personal loans to get by.
This is according to Carmen Williams, TransUnion’s director of research and consulting, who with Lee Naik, TransUnion Africa’s chief executive, provided an overview of South Africa’s 2019 Payment Hierarchy Studies report in Cape Town last week.
TransUnion’s First Quarter 2019 South Africa Industry Insights Report looks at both account level data and consumer level data and includes originations (new accounts), balances and delinquencies.
“We look at credit cards, personal loans, vehicle asset finance, home loans from a secure perspective and from a retail side of things, where we go into detail around clothing accounts and store accounts. This report is very comprehensive and gives us the ability to see the impact that the economic environment has had on consumers wallets and what that means for them in terms of paying their credit,” said Williams.
She said: “So your personal loans and credit cards, personal loans and retail, that’s where growth imbalances is coming, and this growth is actually quite high if you consider what it looked like in quarters before.
"what we saw in the last quarter and what we are seeing this quarter (is) these balances are continuing to rise and this is not good, especially when you look at delinquencies,” she said.
Williams said consumers are stacking up their debt and because it is primarily consumption lending, it gives an indication that “they are taking on this debt to make ends meet”.
“That is why we have this debt and this debt is stacking up, which would be fine if we were in a cycle and consumers were able to manage that, but because we are seeing a rise in delinquencies as well, it really gives an indication that there is a lot of pressure that’s been put on already squeezed wallets,” said Williams.
She said consumers had an average credit card balance of about R23 000.
According to the report, unsecured credit products, including credit cards and personal loans, which are used to fund household expenses and smaller ticket purchases, saw significant year-on-year growth in outstanding balances in this year’s first quarter.
Credit card balances grew 6.6 percent year-on-year, while bank personal loans and non-bank personal loans saw 7.2 percent and 11.4 percent year-on-year increases respectively.
According to the data, bank personal loans saw a jump in originations growth in the first quarter, up 11.3 percent compared with the prior year quarter, which shows that consumers are actively seeking new credit as a means to supplement their incomes and meet their obligations.
According to TransUnion South Africa’s recently published study, consumers were more likely to prioritise paying off their credit cards ahead of other unsecured products, including non-bank personal loans and retail accounts.
Williams said the 3.2 percent fall in gross domestic product in the first quarter caught many by surprise, but the weakness seen in other economic indicators, including unemployment and wage growth, have been putting pressure on consumers’ personal finances for some time.
“In light of this, we have seen consumers increasingly using credit, possibly to finance day-to-day living expenses, and are prioritising the payment of credit cards, a product they perceive to be of greater future utility,” she said.
Williams said lenders would continue to watch key economic performance measures, such as the rate of unemployment, closely.
“Many had already started to change their underwriting criteria and rebalance their portfolios in anticipation of continued uncertainty.
“Now, more than ever, financial institutions need to consider a wider range of data when making underwriting decisions. Traditionally, many have focused on a consumer’s financial standing at a single point in time, rather than considering if it has been deteriorating or improving over the longer term. By using more advanced data now available, such as trended credit data, lenders have historical views of consumer behaviour and deeper insights into credit capacity and ability to pay,” said Williams.