Prior to COVID-19 Outbreak, Debt Balances Continued to Climb as Challenging Economic Conditions Impacted South African Consumers

  • Report provides a view of South African credit market leading up to COVID-19 response measures
  • Total outstanding balances and new account originations up for all major consumer lending categories
  • Bank personal loans pass credit cards to become the most widely held major consumer lending product
  • Non-bank personal loan originations return to growth helped by new market entrants

The newly released TransUnion (NYSE: TRU) Q4 2019 South Africa Industry Insights Report (IIR) revealed that the consumer credit market resisted mounting recessionary pressures and continued to grow. Both outstanding balances and originations (a measure of new accounts opened) across all major product categories showed a year-on-year (YoY) increase. However, it appears this growth might be coming at a cost as delinquencies continued their upward trajectory. All products experienced YoY increases in delinquency rates in Q4 2019 with the exception of bank personal loans, which have now seen an improvement in YoY delinquencies in the last three consecutive quarters.

This report provides a view of the state of the consumer credit market in the latest quarter prior to the outbreak and spread of COVID-19 in South Africa. Carmen Williams, director of research and consulting for TransUnion South Africa, said the Q4 2019 figures would provide a valuable pre-COVID-19 baseline point. “With COVID-19 changing the economic and consumer landscape at pace, the Q4 2019 IIR provides a benchmark for the last full quarter before the impacts of the pandemic start to be felt and understood. We expect future quarters will show additional strain as the effects are realised.”

During the latest quarter, bank personal loans also recorded the largest YoY growth in account originations—up 30.5%. Following what is now the fourth consecutive quarter of robust, uninterrupted growth, bank personal loans surpassed credit cards as the most widely held major consumer credit product.

Non-bank personal loans continued to see the biggest increase in YoY delinquency rates – up 490 basis points (bps) to 26.1% in Q4 2019. This is now the ninth consecutive quarter in a row delinquency rates have increased in this category.

“Outstanding balances have built progressively in recent quarters, with a noticeable upward trajectory since Q1 2019. With two consecutive quarters of negative GDP growth heralding the start of a technical recession, consumers are facing ever more challenging economic conditions, and this is likely driving the need for credit,” said Williams. “With most categories having recorded a decline in the rate of growth of new accounts opened at the beginning of 2019, the latest results show a reversal of this trend and an acceleration of new account openings. Of real significance is both the emergence of new lenders in the non-bank personal loans category, as well as the growth in home loan originations. Both represent a significant shift in the dynamics of the South African consumer credit market.”

Q4 2019 Metrics for Major Consumer Credit Products



Q3 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






The changing dynamics of originations

Bank personal loans have shown accelerated originations growth over the last four quarters. This is believed to be driven by a shift by traditional banks to acquire more short-term, low-value personal loans in response to non-bank competition in this product offering. As such, average originating amounts for new bank personal loans declined by 7.8%.

Although bank personal loans showed the largest YoY originations growth in the latest quarter—up 30.5%--this represents a cooling compared to the rate of annual growth seen earlier in 2019, where it peaked at over 50%. This relative decline corresponds with a resurgence in non-bank personal loans. Although significantly down in the early part of 2019, this category recorded 8.1% YoY originations growth in the latest quarter.

As well as recording growth in originations, non-bank personal loans also showed the highest growth in total outstanding balances, up 31.6% YoY in Q4 2019, signifying both renewed demand from consumers and increased appetite from lenders to meet this demand. Perhaps more significant was where this growth came from: roughly two-thirds (68%) of balance growth came from existing lenders, but almost a third (32%) came from lenders who were not in the market just a year ago. New market entrants are predominantly those considered to be in the FinTech space and as wider TransUnion research has shown, lending by this group of providers in South Africa is very heavily focused on younger consumers.

Williams observed: “FinTech lenders are becoming increasingly important participants in the South African consumer credit market. They tend to target younger, higher risk consumers, and as the effects of the recession continue to be felt, demand for their services will likely remain high.”

Mortgage originations also returned to growth in the latest quarter, up 10% YoY. In previous quarters, the category had recorded YoY declines in originations. This latest trend reversal is driven by a number of factors, which include the continued emergence of home buyers resulting from an increased supply of more affordable housing; lenders promoting purchase affordability by featuring deals which require smaller deposits; and a more general ramping up of activity in the housing market after a slow start to 2019.

Williams continued: “The housing and associated mortgage market is always a complex puzzle. High unemployment and low wage growth have weighed heavily on household finances. The increased supply of more affordable properties coupled with the increased abundance of mortgage deals requiring a smaller deposit, have clearly had an effect in the most recent period. How this develops over the next few quarters, as the demand-supply gap potentially narrows and house prices respond accordingly, will be watched closely.”

Delinquency increases closely mirror origination strategies

As in previous quarters, the level of delinquencies increased across every major consumer credit category, with the exception of bank personal loans, which saw a YoY improvement of 30 bps in Q4 2019.

Delinquencies, by their very nature, are closely aligned to the risk origination strategies of the various product lines. Of those categories that saw a deterioration in delinquency rates, credit cards had the smallest increase – up 60 bps YoY in Q4 2019. In the latest quarter tracked in the report for originations (Q3 2019 because of reporting lag), there was a continued shift to lower risk consumers, with 94% of all new credit cards issued to above-prime* consumers.

Further analysis shows that 57% of new credit cards were to super prime consumers, up from 47% a year ago, indicating that credit card lenders are approaching portfolio growth selectively and with caution. This strategy of focusing primarily on low risk borrowers has impacted new card account growth rates, with originations increasing just 1.8% YoY in the most recent quarter. But at the same time, the shift to lower risk borrowers has fuelled growth in new card credit limits, with average origination amounts increasing by 19.9% YoY, as card issuers are generally more comfortable in extending larger limits to consumers with good risk scores.

In contrast, non-bank personal loans, which witnessed the biggest YoY increase in delinquency rates (490 bps), saw a shift in originations risk, with more new accounts being extended to consumers in riskier credit tiers. In the latest quarter, 75% of new non-bank personal loans were to below-prime consumers, compared to 66% a year ago. The subprime category alone accounted for almost half (48%) of originations, up from 40% in the prior year quarter.

Non-bank personal loan delinquencies have been deteriorating since 2016. Despite this persistent trend, non-bank lenders continue to book new accounts at the bottom end of the risk spectrum. While it is important that consumers across the risk spectrum continue to have access to credit in order to fund necessary household spending, it is equally vital that lenders understand the risk levels in their portfolios and have strategies in place to effectively manage that risk. Particularly in the non-bank personal loan space, lenders need to monitor these rising risk levels and how even small economic shocks, such as inflation, electricity and fuel hikes, may impact their ability to meet their debt obligations.

It is also worth observing that, although bank personal loans saw a YoY improvement in delinquencies—its third consecutive quarter in a row—vintage analysis reveals that the most recent originations are more risky compared to previous quarters, with more accounts going into arrears more quickly. This indicates that high growth in new accounts may be masking underlying increases in risk within the portfolio. As well, when comparing Q3 2019 origination risk to the same quarter a year previous (Q3 2018), the number of new bank personal loans advanced to subprime borrowers increased by 11%, from 14% in 2018 to 25% in 2019. These factors point to the importance of diligence in portfolio monitoring for banks issuing personal loans as well.

Global economic uncertainty likely to have an impact

Williams concluded: “Although we’ve seen a resurgence in year-on-year originations growth in the latest quarter, we witnessed a general decline across most categories earlier in 2019. With the global economy set to face challenges because of COVID-19 and its impact on supply chains, oil prices and international trade more generally, it will be interesting to see if this bounce in originations can be sustained or if it will be very short-lived against the backdrop of mounting economic pressures. Regardless, lenders need to stay vigilant and constantly update their underwriting models to take account of potential changes in consumer behavior. The use of trended credit data and predictive analytical tools are especially important to filter out the noise caused by shorter-term events.”

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.

*TransUnion South Africa scorecard risk tiers: subprime 0–615; near prime 616–729; prime 730–821; prime plus 822–917; super prime 918–999. Above prime ≥822 and below prime ≤729.