Consumer credit reporting agency, TransUnion’s latest industry insights reports indicate that the market remains in a mixed recovery growth phase with continuing economic pressures that may hinder the pace of recovery in South Africa.
The country’s economy faces rising stagflation risks, and real GDP forecasts have been revised to 1.5% for the 2022 year from 1.9%. Domestic inflation continues to push higher, ending the first quarter at 5.9%, which is within the upper band of the target range of 3-6% set by the South African Reserve Bank.
The conflict in Eastern Europe will negatively impact South Africa’s trade balances in the months to come, with high energy prices adding further woes to the domestic import costs. However, elevated metals and precious metal prices may help offset these costs from increased value gained through exports, noted TransUnion.
“Consumer and lender appetite for new credit seems to have aligned in the latest quarter for unsecured lending except for retail installations, as all other products experienced an increase in origination volume,” it said.
Home loan originations were relatively flat in Q4 2021, and vehicle finance originations were below the prior year primarily due to the supply shock of new vehicles and high costs associated with quality second-hand vehicles deterring demand. Overall, the number of consumers participating in the credit market has remained relatively flat, up 0.3% over the last year.
Average balances for secured credit facilities decreased due to several of factors, increased originations from lower-value homes and potentially increases in prepayments from borrowers in anticipation of rising interest rates brought down average balances in home loans.
Credit Card Summary
Credit card origins recorded growth for the second consecutive quarter, said TransUnion.
“Card originations remain significantly under pre-pandemic levels despite the resurgence in new business volume. The decline in overall account volumes may be more concerning for lenders, recording another quarter of reductions, making it the fifth consecutive quarter of declining account volumes.”
the average balance per account was up 3.6% year-on-year to R21,400with the current average balance per account being 21.9% higher than Q1 2019 (Pre-pandemic) levels, indicating continued leveraging behavior from existing cardholders.
Credit card origins increased 27.6% year-on-year, to R131,000. Credit card originations have now grown for the second consecutive quarter, as Q4 2021’s origination volume improved 8% over the previous quarter, said TransUnion.
Origination growth was observed across all risk tiers, but primarily driven by below-prime risk tiers, which accounted for over 68% of origination as at 31 December 2021 (up 4.5% year-on-year).
Millennials (born 1980-1994) and Gen Z (born 1995-2010) contributed 63.6% of all originations from an age distribution perspective.
Average new credit lines declined by 3.6% year-on-year due to higher origination volume from subprime borrowers who receive lower credit limits, the credit expert said.
Despite the growth in new business through originations, the total number of accounts fell 7.7% year-on-year outstanding balances (down 4.4%) and total credit lines (down 14.1%) also decreased.
Account volume decrease was recorded across the risk spectrum but not evenly distributed as Prime accounts led the way with a decline of 12.2% year-on-year, followed by near prime (down 11.9%) and prime plus (down 7.0%), said TransUnion.
It said that credit card serious account-level delinquency increased to 13.8% (up 170bp). Rising consumer inflation (5.9%) and interest rates (repo rate up 25bp) will continue to add pressure on borrowers’ level of indebtedness and hinder their capacity to service debt in the coming months.
Bank personal loan originations improved for the third consecutive quarter primarily driven by younger borrowers but remains well below pre-pandemic levels. For the fourth quarter personal loan account volumes recorded double-digit reductions when compared on an annual basis, said TransUnion.
Bank personal loan originations are up 8.5% year-on-year, to just under 1 million in Q4 2021. At current levels, origination volumes remain 28.5% below pre-pandemic levels.
Origination growth was primarily driven by the subprime tier (up 9.4% in December 2021), accounting for 63% of total origination volume.
From an age distribution point of view, contributions to origination volumes were primarily driven by millennials (up 9%), accounting for 52% of total origination volume and Gen Z borrowers (up 29.2%), accounting for 11% of total origination volume and for the first time breaking the hundred thousand mark.
The average new loan amount increased by 6.1% year-on-year, driven by prime and above risk tiers.
The average new loan amount of R32,600 is the highest average amount since Q2 2020 (R33,100), indicating lenders are open to extending credit to borrowers but remain cautious by extending much higher loan amounts to lower risk borrowers to manage the spike in non-prime origins.
Outstanding balances declined by 10%, driven by the continued decline in the total number of accounts that is outpacing new business growth, said TransUnion. Average balances remained relatively flat for the period. Below-prime accounted for 60.5% of active account balances as at the end of Q1 2022, a decline of 1.1% year-on-year.
Bank personal loan serious account-level delinquency increased by 220bp yoy to 32.3%, primarily driven by millennial subprime consumers contributing 52% of the total number of accounts in serious delinquency at the end of Q1 2022.
Deteriorating macroeconomic conditions coupled with the active account balance share and origination weighted towards non-prime accounts, pressure on delinquency performance may continue in the coming months.
Read: Here’s how much credit-hungry consumers in South Africa owe on their homes and cars