Demand for Consumer Credit Falls as South Africans Remain Cautious


  • Consumer demand for credit fell, influenced by both consumer sentiment and ability to access finance
  • Lenders continued to adjust their risk appetite and took a cautious approach to funding new credit
  • Delinquencies continued to rise but were less pronounced for credit cards which have a greater perceived utility in COVID-19 times


TransUnion (NYSE: TRU), today released the findings of its Q3 2020 South Africa Industry Insights Report. The results show the ongoing impact of COVID-19 on the consumer credit market and the difficult decisions some consumers have to make to balance their household finances.

Although the latest data primarily relates to a period when COVID-19 measures were less stringent than during the initial lockdowns seen earlier in the year, there was still a fall in consumer demand. Application volumes (as measured by enquiries) declined as consumer confidence remained low, with a reduced appetite for new credit reflecting increased unemployment and high levels of financial hardship. In Q3 2020, year-on-year (YoY) enquiry volumes fell by double digits across all the major consumer lending categories. The decline was most pronounced for credit cards (down 49%) and non-bank personal loans (down 29%).

Originations (measured by new accounts opened) also fell by double digits YoY for all major consumer credit categories. In the most recent period (Q2 2020 for originations due to reporting lag), the decline in volume was most pronounced for clothing accounts (down 69.4%) and least pronounced for credit cards (down 23.1%).

Serious-level delinquencies (accounts three or more payments past due) increased across all major consumer credit categories as consumers continued to experience financial stress.

Carmen Williams, director of research and consulting for TransUnion South Africa, said: “With the prolonged nature of the pandemic, it’s clear that the economic impact has been significant and sustained. Consumer confidence and lender risk appetites have been severely impacted, and the latest results show the changing dynamics of both the demand and supply of credit.”







Originations under pressure

Originations are a function of both consumer demand and lenders’ capacity and willingness to advance credit (supply). Although enquiries (credit demand) have fallen, figures show there is still liquidity (potential supply) in the market. The latest SARB (South African Reserve Bank) statistics show that money supply YoY growth rates have increased and are greater than at the same time a year ago*, suggesting that at least some of the fall in originations is due to reduced lender appetite rather than liquidity as they modify their risk and underwriting models.

Another important factor influencing originations, and the related enquiries that lead to these approved and funded applications, is physical access to services. Categories like personal loans (bank and non-bank) are highly dependent on people coming through the door. From a bank’s perspective, while selected branches remained open during level five and four COVID-19 lockdown restrictions, foot traffic was limited as fewer consumers ventured out. The same is also true for non-bank personal loans as stores were closed. Generally, the inability to convert these applications online and fulfil them digitally end-to-end is also one of the contributing reasons for a drop in originations.

The ability to access physical locations to apply for credit also explains some of the fall in clothing loan originations. With many shops either closed or seeing reduced consumer visits during varying levels of lockdown, the impact to this most widely held form of credit amongst South African consumers is significant.

Conversely, credit cards recorded a much smaller drop in originations in the most recent period, as consumers relied on these as a payment and purchase mechanism of choice to complete online transactions. Also, consumers can more easily apply and be approved for a credit card online without going to a branch.

Williams continued: “With the GDP figures announced earlier this month showing signs of an economic recovery, the speed, shape and sustained nature of this recovery is what will influence market dynamics in the coming months. Any recovery is likely to be protracted and the next few quarters will give us a better idea on how consumers and the economy are responding to the crisis. Life is far from back to normal and access and use of lending services is still significantly down from pre-pandemic levels.”

Delinquencies continued to rise, but were less pronounced for credit cards

As with originations, credit cards somewhat resisted the rising delinquency trend. Although delinquencies increased YoY in Q3 2020 across all major consumer credit categories, it was least pronounced for credit cards, which recorded a 40 basis points (bps) increase in serious delinquencies. This compares to more than 600 bps for some other categories, with non-bank personal loans up by 620 bps and clothing up by 630 bps. It is possible consumers are prioritising credit card payments to preserve both the utility and liquidity they provide in COVID-19 times.

The overall rise in delinquencies and the sustained impact the pandemic is having on household finances continues to be very apparent. The latest TransUnion Financial Hardship Survey in South Africa** showed that almost four in five (79%) South African consumers report their household income being negatively impacted by COVID-19. The survey also showed that amongst these impacted consumers, concerns about their ability to pay bills and loans remains high at 85%, with 29% expecting to run into a shortfall within one month.

“Due to the resourcefulness of many consumers when they face financial distress, there tends to be a delay in the level of delinquencies coming through. Consumers tend to work through a range of options before defaulting on a loan – using savings, other formal borrowing facilities, or even borrowing from friends and family, before they will miss a payment. Many lenders have been proactive in offering treatments, and their continued support will hopefully reduce the severity of any impact going forward. Delinquency trends warrant continued analysis, and it will be critical to understand how consumers prioritise payments in the coming months,” said Williams.

Outstanding balances reflect changes in wider consumer and lender behaviour

With various government schemes and lender initiatives helping many consumers, the eventual impact of the pandemic on the consumer credit market is far from clear. With a drastic slowdown in originations, outstanding balances have remained subdued or have declined as consumers have sought to reduce their financial obligations.

However, for bank personal loans, the trend is more complex. In some cases, bank personal loans are being used as a payment holiday mechanism where loan balances are increased to provide liquidity. This leverage is helping consumers avoid being delinquent and at the same time is increasing overall outstanding balances (up 8.7% YoY in Q3 2020). Outstanding balances also increased for auto loans (up 10.9%). Refinancing options, low interest rates, renewed purchasing activity***, and a shift towards higher-priced vehicles, have all contributed to this increase.

“The COVID-19 pandemic has led to a number of fundamental shifts in the South Africa consumer credit market. It has exposed the need for lenders to enhance digital channels and re-engineer customer journeys – both for general account servicing and applications. It has also emphasized the importance of using trended data and advanced analytics to anticipate when a customer is going to face a difficulty in meeting payment obligations. By taking action early, lenders can give consumers the support they need whilst also effectively managing the risk in their portfolio.” concludes Williams.

* Source: SARB (South African Reserve Bank) latest data shows money supply YoY growth rate (a measure of liquidity in the market) was greater than the same time a year ago (Sep 2020: 9.5%, Sep 2019: 6.2%). For a more comparative period reflecting a Q2 view as is for TransUnion originations figures, the data for growth rates was still an increase at Jun 2020: 11.1%, Jun 2019: 9.0%.

** Survey conducted week of 01 November. Survey sample of 1,100 adults in South Africa


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).