New data from consumer credit reporting agency TransUnion shows that consumer demand for credit is surging, in spite of the second lowest consumer confidence levels in three decades, rising inflationary pressure and a high-interest rate environment.
TransUnion’s Q2 2022 South Africa Industry Insights Report showed an increase of 37.9% in new credit card accounts over the same period last year. At the same time, delinquencies are stabilising across major consumer credit products, and secured lending performance has stabilised, although there are signs of a slowdown in home buying activity, the agency said.
The latest analysis covers a period of rising inflationary pressure, a high-interest rate environment, and additional macroeconomic factors exacerbated by conflicts abroad. The report found a number of notable trends within the South African consumer credit industry pertaining to new business volumes, delinquencies and the level of outstanding debt.
The findings are in the context of the second lowest consumer confidence reading in three decades, second only to Q2 of 2020 at the peak of the initial outbreak of the pandemic. That reading signalled a corresponding marked slowdown in consumer spending in the same months, with a 2.5% year-over-year (YoY) decline in retail sales from a year earlier in June.
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Consumer sentiment was primarily impacted by the highest inflation rate in 13 years, as well as increased interest rates. This was reflected in the Q2 TransUnion South Africa Consumer Pulse Study published in July, with 60% of households surveyed indicating that they were focused on cutting back on discretionary spending.
Originations on vehicle finance loans are up 3.1% YoY, to 132,000 in Q1 2022. Current volumes’ originations are 0.9% below pre-pandemic levels (Q1 2020). From an age distribution perspective, Millennials accounted for 47% of new business, followed by Gen X at 34.2%, said TransUnion.
Gen Z consumers grew by 36% YoY, albeit off a lower base. In terms of risk, consumers with a credit score above 721 (Super Prime) contributed 26% of originations, with actual volumes up 15.2% YoY. The average new loan amount increased by 10% YoY, surpassing the previous high in Q4 2021 to R362,000.
The increase in new loan amounts aligns with the TransUnion Q1 2022 Vehicle Price Index findings, which reflected price inflation for new vehicles at 4% and used vehicles at 7.9% compared to Q1 2021, with the ratio of used vehicles sold to new at 2.2 to 1.
The reduction in the number of accounts (down 0.3%), outstanding balances (down 1.6%), and average balances (down 1.3%) were due to several factors, noted TransUnion.
A decline in new business volumes for two consecutive quarters between Q3-Q4 2021 and consumer sentiments on prioritising paying down their debt faster may be contributing to the decrease in balances, it said.
The serious account-level delinquency rates at 7.0% is an improvement of 30 basis points from the prior year. Delinquencies are stablising at the current level, potentially due to the shift in risk distribution where higher risk below prime accounts – credit scores below 656 – has reduced by 1.1% year over year.
Home loan origination volumes increased marginally compared to the prior year, but balances on home loans have decreased, said TransUnion.
New home loans were up 1.3% YoY and 15.7% below the prior quarter at 45,000 as of Q1 2022.
Despite the increase in origination volume, the market is expected to slow due to rising inflation and interest rate pressure deterring consumers from large purchases. The average new loan amount of R812,000 is down 5.2%, despite home prices continuing to increase, which indicates consumers are likely purchasing more affordable homes.
Millennial consumers are the primary contributors to new business accounting for 52% of new business volume, said the credit expert.
Despite the number of accounts increasing, both outstanding and average balances declined YoY. “From an outstanding balance perspective, this could be due to the lower value loans originated over recent quarters. In terms of average balances, this could be due to borrowers who have managed to maintain or even improve their income paying down their home loan obligations in response to the rising cost of living environment,” said TransUnion.
Serious account-level delinquency rates were down 10 basis points YoY to 5.1% in Q2 2022. This is the fifth consecutive quarter where rates have stayed at 5.1%, indicating that severe account-level delinquencies have stabilised at current levels, it said.
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