Delinquencies Rise as Challenging Economic Conditions Continue to Impact Consumers

Delinquencies Rise as Challenging Economic Conditions Continue to Impact Consumers

  • New account originations fell for most products as rising delinquency rates put pressure on lenders to slow their growth
  • Bank personal loans were the outlier with significant growth in new accounts over the past several quarters, likely driven by consumer demand for liquidity
  • Total outstanding mortgage balances increased as lenders showed willingness to accept smaller deposits as home buyers struggled to save capital required

Johannesburg, December. 5, 2019 – The newly released TransUnion (NYSE: TRU) Q3 2019 South Africa Industry Insights Report reveals falling originations and deteriorating delinquency rates across most major lending categories, with the exception of bank personal loans. At the same time, outstanding balances increased across all major consumer lending categories (including bank personal loans) as consumer demand for credit remained high in the face of difficult economic conditions.

Bank-issued personal loans were the sole major consumer lending product that had year-on-year (YoY) new account opening growth in Q2 2019, the most recent quarter for account originations data. Bank personal loans have staged a resurgence in originations over the most recent three quarters, with YoY new account growth above 30% in each quarter after a trend of flat or declining originations over the prior year. In Q2 2019, bank personal loan originations grew 53.0% YoY. This was likely an indication of strong demand for credit by consumers; in difficult economic times, consumers often use personal loans as a source of liquidity to help pay other bills and fund day-to-day expenses.

At the same time, the recent delinquency performance for bank personal loans presents a mixed story. Overall, account-level serious delinquency rates for bank personal loans, measured as the percentage of accounts three or more months in arrears, stood at 22.0% in Q3 2019. This represents a YoY improvement of 120 basis points (bps) compared to the same quarter in 2018. However, this apparent improvement is likely due to the rapid growth of new accounts over the past several quarters that increased the total number of open personal loan accounts faster than the rise in delinquencies. This is a classic situation that warrants static pool analysis–also known as vintage analysis–which involves investigating the delinquency dynamics of several fixed cohorts of accounts in conditions of high origination growth to expose any hidden default risk. TransUnion is currently in the process of exploring this as it provides a more accurate picture of the trend in delinquencies and whether borrowers are experiencing improved or deteriorating performance.

“As tough economic conditions continue to bite, there has been a rise in consumption lending – this is where consumers use credit to help with everyday living expenses. With the recent growth in bank personal loan originations, as well a sustained increase in outstanding balances for transactional lending products including credit cards, it is clear that many South African consumers are struggling to get by,” said Carmen Williams, director of research and consulting for TransUnion South Africa. “Given the importance to consumers of having ongoing access to credit, it is gratifying to see that lenders have continued to make credit available. At the same time, with delinquencies continuing to rise across most credit products, lenders need to be diligent in their underwriting and portfolio management strategies to ensure the ongoing health of their own balance sheets.”

Q3 2019 Metrics for Major Consumer Credit Products


Q2 2019 YoY % Change in Originations (1)

YoY % Change in Total Outstanding Balance

Serious Delinquency Rate (2)

YoY Basis Points (bps) Change in Delinquency Rate

Credit card





Bank personal loans





Non-bank personal loans





Home loans





Vehicle finance





  1. Originations are viewed one quarter in arrears to account for reporting lag
  2. Account-level serious delinquency rate, measured as percentage of accounts three or more payments past due

Mortgages record a rise in outstanding balances as lenders support consumers struggling to raise larger deposits

Q3 2019 witnessed strong YoY growth of home loan balances, up 8.4% in the last 12-month period. This balance increase occurred despite a 7.6% YoY drop in home loan account originations in the most recent quarter. The growth in overall home loan balances was driven by higher average account balances, which was reflective of a wider trend for larger loan-to-purchase rates in the residential property sector. The most recent FNB Property Barometer, released in October, showed that the average loan-to-purchase price ratio for residential property was higher than at any time since 2008. This key ratio is now at 90.6% meaning the average house buyer has an upfront deposit of less than 10% on the total purchase cost.

Williams observed: “Although average house prices have increased at a slower rate than inflation, they have still grown, and this has led to a general increase in overall mortgage balances. With growing pressure on disposable incomes, many consumers are unable to save a bigger deposit to keep pace with house price movements and are instead having to prioritize everyday living expenses. The fact that mortgage lenders are willing to finance a relatively bigger percentage of the purchase price continues to provide support South African consumers looking to become homeowners.”

Record unemployment and falling consumer confidence reflected in rising delinquency rates

With the exception of bank personal loans, all other major consumer lending categories recorded YoY increases in serious delinquency rates.

The rise in delinquencies was particularly pronounced for non-bank personal loans, which recorded a 590 bps increase YoY in Q3 2019. This was the eighth consecutive quarter that non-bank personal loans recorded an increase in delinquency rates. The flat YoY growth in non-bank personal loan originations, in sharp contrast to rapid new account growth in the bank personal loan category, was likely driven by this delinquency rise, as lenders pulled back from issuing new accounts in order to manage their deteriorating portfolio quality. Home loans (90 bps), vehicle finance (60 bps) and credit cards (40 bps) all recorded more modest delinquency rate increases, but the overall trend in rising delinquencies has become more pronounced in recent quarters.

Vehicle finance (VAF) serious delinquencies have been steadily increasing for the past three years, and have more than doubled over this time to 5.5% in Q3 2019. VAF industry dynamics are believed to be a contributing factor, with concerns around balloon payments and customers’ ability to repay or refinance these large payments at the end of their loan terms. Although delinquency rates for VAF have continued to rise, the rate of increase decelerated in the year ended Q3 2019 compared to the YoY change the prior year, potentially indicating that lenders have focused on addressing this issue in their lending strategies.

For credit cards, Q3 2019 was the second consecutive quarter of YoY increases in delinquencies and indicates that lower-risk borrowers, the primary market for credit card issuers, are also beginning to feel the pinch of difficult economic conditions as serious delinquency rates for the super prime and prime segments increased by 23.6% over the last year.

Williams commented: “After holding firm during the first half of the year, the most recent consumer confidence figures show sentiment has finally fallen, as weak economic growth and unemployment rates above 29% have had an impact on consumer optimism. Delinquency rates are also reflective of a challenging economic landscape, and in many categories have been experiencing sustained increases over multiple quarters.”

Uncertain times ahead

“With unemployment at a 16-year high, and a recent downgrade by the World Bank to South Africa’s economic growth forecast, lenders are taking a cautious approach to risk management and are moderating originations activity as a result. Encouragingly, they are still lending, but with the backdrop of recent delinquency increases, originations strategies are generally shifting toward lower-risk borrowers, as lenders need to protect their overall portfolio health. Credit is an important catalyst for investment and growth and its continued availability will be a key factor as South Africa looks to navigate challenging economic times. To stay competitive and effectively manage risk, lenders need to use advanced solutions, such as trended credit data, to help gain deeper insight into consumer behavior and their ability to pay. This will help enable lending to both new and existing customers at a time when they need it most,” concluded Williams.

More information about the TransUnion South Africa Industry Insights Report, including details about a variety of credit products, can be found here . It includes more information about balance and delinquency trends, including for credit cards, personal loans, vehicle finance and mortgage loans. Please visit the following website to register for TransUnion's Q3 2019 Industry Insights Report webinar scheduled for Tuesday 10 December at 10am.

About the South Africa Industry Insights Report

TransUnion’s South Africa Industry Insights Report is an in-depth, full population-based report that provides statistical information every quarter from TransUnion’s national consumer credit database, aggregated across virtually every active credit file on record. Each file contains hundreds of credit variables that illustrate consumer credit usage and performance. By leveraging the Industry Insights Report, institutions across a variety of industries can analyse market dynamics over an entire business cycle, helping to understand consumer behaviour over time. Businesses can access more details about and subscribe to the Industry Insights Report . The South Africa Industry Insights Report looks at major consumer lending categories: credit cards, personal loans, home loans, vehicle and asset finance (VAF), and clothing. The report primarily focuses on three dimensions across these categories: originations (new accounts opened), balances (outstanding total and average lending balances) and delinquencies (accounts in payment arears).