Consumer Credit Index Up Slightly in Q2 But Credit Health Remained Under Pressure

The Consumer Credit Index (CCI) increased slightly to 47.1 in Q2 from 46.5 in Q1 according to TransUnion, a global leader in credit and information management that compiles the report. The CCI is based on a 100-point scale, where 50.0 is the break-even level of improvement and deterioration of credit health.

The index is made up of three components: consumer credit behaviour (borrowing and repayment), household cash flow conditions, and debt servicing costs. A number less than the 50.0 break-even point shows a decline in credit health.

Although rising slightly from Q1 to Q2, the index remained below 50.0, implying that consumer credit health was still deteriorating, though not as acutely as in the first quarter of the year when the rand exchange rate depreciated sharply and consumer price inflation spiked higher.

In Q1, the CCI fell sharply as the South African Reserve Bank (SARB) hiked interest rates by 0.75 percentage points and consumer credit behaviour deteriorated sharply during the quarter. But in Q2 the rate of new accounts lapsing three months in arrears on repayments slowed and SARB interest rates remained stable.

“The second quarter results are less alarming than the first quarter, but overall macroeconomic conditions remain rather fragile, so now is no time for complacency,” cautioned Regional President TransUnion Africa, Geoff Miller.

Russell Lamberti, economist at ETM Analytics, the firm that helps TransUnion compile the CCI, echoed Miller, saying that overall economic conditions were not conducive to a pick-up in consumers’ ability to cope with their debt repayment burdens. “The trends in defaults are still a little concerning, while distressed borrowing has become a more prominent feature again. The lack of further rate hikes is helping, but our household cash flow measure is the weakest it’s been since 2010 and reflects practically no room for households to take on more debt or withstand higher interest rates without either seeing defaults shoot higher or living standards and non-essential spending falling.”

Revolving credit – credit cards and store cards – used as a percentage of one’s credit limit increased on average by 2.0% y/y in Q2. This indicator of distressed borrowing has been in a deteriorating trend for a year as households access credit to maintain living standards. However, revolving credit utilisation did not rise on a q/q basis and, although already off a high base, does not suggest households are engaging in particularly reckless credit behaviour. “The trend in distressed borrowing could be worse, but we have to interpret this data carefully because revolving credit utilisation is already quite high, indicative of a consumer sector under pressure for some years already, not just in recent months,” said Miller.

The report also draws attention to the implications of consumer credit health for the retail sector, noting that the CCI has in the past decade been a leading indicator of clothing and apparel sales peaks and troughs. ETM’s Lamberti points out that the overall South African economy has been weak for a number of years but that the retail sector has been relatively resilient. “Eventually, the difficulties in areas like manufacturing and mining are likely to spill into the retail sector. It’s the extent of the slowdown that remains to be seen,” said Lamberti.

He added that the CCI was pointing to sustained resilience or even improvement in clothing and apparel sales volumes until around mid-2017, but that the latter half of 2017 and 2018 would likely be a more vulnerable period for retailers in this segment. “While there is no perfectly predictive data, the CCI offers investors and business managers another tool in the planning toolbox. Apparel retailers will need to be aware of these trends moving into the 2017 trading period.” According to Stats SA, retail sales volumes increased only 1.7% in June 2016, well below economists’ forecasts.

Released on a quarterly basis to the public, the TransUnion CCI measures aggregate consumer loan repayment records; tracks the use of revolving consumer credit facilities as an indicator of distressed borrowing; estimates household cash flow as a means of determining financial pressure/relief; and quantifies the relative cost of servicing outstanding debt. These aspects are then combined into a single numeric score of consumer credit health. TransUnion compiled the index with technical support from market intelligence firm ETM Analytics.

TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key, publically available macroeconomic variables impacting household finances. Unlike other indices in the market, the CCI is driven by objective market data rather than consumer surveys or questionnaire responses.

Analysis suggests that the CCI may be a good leading indicator for business activity in certain economic sectors, particularly those more closely related to consumer spending. Find a full report on the quarterly TransUnion CCI at

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