Consumer Credit Index up slightly in Q3

Household cash flow falls to its lowest levels since early 2010

The Consumer Credit Index (CCI), released today by TransUnion, a global leader in credit and information management, indicates that credit health deteriorated at a slightly slower pace in Q3 than during Q2 2014. The CCI increased from 48.9 in Q2 2014 to 49.3 in Q3. Despite this marginal upward trend, the report still marked the 11th straight quarter of credit health deterioration.

The CCI is a unique indicator of consumer credit health measuring the ability of consumers to service existing credit obligations within the constraints of their monthly household budget. It is based on a 100-point scale, where 50.0 is the break-even level between improvement and deterioration of credit health. Any number less than the 50.0 break-even point shows a decline in credit health.

“The CCI indicates that consumer credit health deteriorated at a slower pace in Q3 2014 compared with Q2. Despite this we are now heading for three straight years of declining credit health,” said Geoff Miller, CEO of TransUnion. “Millions of consumers are still feeling the pressure of tight cash flow, with household cash flow levels falling to their lowest point since early 2010. However, there is light at the end of the tunnel -- while cash flow remained weak, it did not turn negative. There is also some relief in the form of slightly lower inflation, which is offsetting the current poor income growth.”

Continuing on a positive note, the rate of new consumer loan defaults declined further this quarter on a year-on-year basis. This is indicative of the more prudent lending measures that have been put into place since 2013. The distressed borrowing indicator stabilised in Q3, however, it still shows that households are being forced to access more credit to supplement their budget. This indicator shows the amount of revolving credit used, such as credit cards and store cards, as a percentage of a consumer’s total credit limit.

“Households are currently using 50% of their credit limits, up from about 40% in 2007. Use of revolving credit is rising at a rate of approximately 3.5% year-on-year. This phenomenon is predominantly driven by credit cards. While concerning, this rate of increase is still well below the levels of acute distress in 2008 when distressed borrowing was rising at a rate of approximately 10% year-on-year. The falling rate of new defaults may in some cases be a result of the increased use of revolving credit and distressed borrowing,” says Miller.

Already tight budgets have been put under increased pressure as a result of a rise in the benchmark repo rate in July. The South African Reserve Bank (SARB) increased this rate from 5.5% to 5.75%, resulting in an increase in the prime rate of interest from 9.00% to 9.25%. While not a large increase, this has nonetheless had a negative impact on consumer debt affordability. Debt servicing costs have increased by around 6.5% in the last year across the board for loans linked to prime.

“The net result of this increase is that households that are already barely able to service their debt obligations are now finding it that much more difficult to meet their repayment commitments and afford monthly household expenses,” Miller adds.

Consumer credit health is strongly linked to employment conditions in the economy. The indicators on this front remain negative, with the South African labour market index for Q3 2014 remaining close to its lowest level since 2009. The index has remained below 50.0 for most of the period since 2007, barring a one-year period from Q2 2010 to Q1 2011. This represents a prolonged period of job and wage insecurity.

“Currently the index signals slow or no real wage growth and retrenchments in some sectors. Employee surveys reveal that perceived job security is poor and declined sharply since Q1 2014. These factors all point to increasingly difficult credit market conditions in the foreseeable future. While consumer credit distress in the formal credit sector has stabilised, there is a rising risk that informal credit channels are used by the marginalised and that credit behaviour here deteriorates more sharply,” Miller concludes.

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. The index is compiled by the TransUnion Credit Bureau 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. A full report on the quarterly TransUnion CCI can be found on