South Africa Consumer Credit Market Heating up as Younger Generations Show Increased Participation

  • Strong growth in new account openings (originations) recorded across all major categories, with the exception of credit cards
  • Younger generations featured more heavily in new account openings, having displayed significant declines in the early pandemic phase
  • Delinquencies showed a deterioration across all major unsecured lending categories as consumers continued to exhibit the strain of the pandemic on household finances

TransUnion (NYSE: TRU) today released the findings of its Q3 2021 South Africa Industry Insights Report. With unemployment still at record levels, and consumer price inflation above average household income growth*, the pressure on South African finances remains and is clear to see in the latest consumer credit data. The report shows a number of emerging trends that highlight differences in credit behaviours by consumer generations as well as divergent performance across product categories.

Originations—a measure of new accounts opened that is a function of both credit demand and supply—increased year-on-year (YoY) across all the major lending categories, except for credit cards. The data (Q2 2021 for originations due to reporting lag) is a comparison to a period a year ago when the onset of the COVID-19 pandemic and ensuing lockdown drove consumers and lenders to take a cautious approach to credit.

Home loans recorded the largest percentage increase in originations in the latest data, up 149.6% YoY in Q2 2021. This is as much a function of comparison to a weak quarter in 2020 as it is a reflection of increased activity in the market. In recent quarters, there has been a trend of consumers whose income has been unaffected or even increased during pandemic times entering the housing market as affordability has increased; this trend has continued in the current quarter. With the auto market also seeing a recovery, especially for newer used models**, vehicle finance also recorded strong originations growth, up 95.8% YoY. Again, because of a comparison to a significantly subdued quarter of activity the year before, non-bank (up 83.3%) and bank personal loans (up 79.6%) also recorded strong growth.

Although credit card originations fell YoY in the latest quarter (-23.5% in Q2 2021), outstanding credit card balances continued to grow, up 14.4% YoY in Q3 2021. Throughout the pandemic, South African consumers have relied on credit cards for both the utility they provide, particularly in facilitating the growth in online transactions, and to access a flexible source of credit to meet household bills when finances are under pressure.

While YoY originations increased in most categories, the consumer credit market in South Africa is still below pre-pandemic levels. This is particularly true in the unsecured lending space (credit cards and personal loans), where the origination volumes are between 10-41% lower than their Q2 2019 levels. Recovery has been more pronounced in secured lending (less than 10% below Q2 2019 levels for home and vehicle finance loans), partly due to the risk profile of consumers taking out new credit, as super-prime borrowers have taken advantage of the low interest rates offered by lenders.

Lee Naik, CEO of TransUnion Africa, said: “The volatility in the consumer credit market created by COVID-19 persists, and with low vaccine take-up and new variants in the population, this uneven recovery is likely to continue. There are some positive indicators, especially when looking at originations, but the return to a truly growing, efficiently functioning credit market will be difficult to navigate for consumers and lenders alike.”

Younger consumer driving originations growth

A closer look at origination trends reveals the shifting generational dynamics of the market. Younger consumers accounted for much of the growth in several key categories. When looking at non-bank unsecured personal loans, Millennials (born 1980-1994) accounted for 41% of total originations volume, an increase of 100.6% YoY in Q2 2021. A similar trend can be observed in the secured category of home loans, where millennials accounted for more than half (52%) of all originations in Q2 2021.

Naik continued: “Although an increase in lending to younger generations should be anticipated over time as their income and credit needs grow, what is so significant about this trend currently is that it starts to reverse what we saw earlier in the pandemic, when younger generations were the first to withdraw from the market. In most categories, lending to younger generations still isn’t back to pre-pandemic levels – but this latest round of figures shows significant momentum in closing the gap.”

Unsecured lending products experienced deterioration in delinquencies

The delinquency picture in the South Africa consumer credit market remains volatile and has been erratic at best through the pandemic. Most recently, macroeconomic drivers as well as social events—such as the civil unrest seen in July—have all had a bearing on consumer incomes and their ability to repay credit. In Q3 2021, the primary unsecured credit categories of non-bank and bank personal loans and credit cards recorded an increase in delinquencies YoY – up 550 basis points (bps), 520 bps and 120 bps, respectively.

The TransUnion Consumer Pulse Study*** conducted in Q3 2021 echoed these figures, revealing that almost half (47%) of all South African consumers surveyed said they expected to be unable to pay any of their current bills and loans in full.

Naik concludes: “It is clear many South Africans are continuing to experience financial hardship because of the pandemic and mounting inflationary pressures. As a result, it is proving difficult for lenders to chart a path to recovery. Only by portfolio benchmarking and constant monitoring can they remain agile and respond to the changing dynamics of the market. The festive and summer holiday season is always a time of increased consumer spending, and making sure credit is advanced responsibly over this period is paramount. Credit can act as a catalyst for growth when granted and utilised in a sustainable manner – and the next few quarters will be critical in determining the future direction of our economic recovery.”

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.

* Statistics South Africa shows unemployment at a record 34.9% in Q3 2021, up from 34.4% in Q2 2021. It also reported consumer price inflation was up 4.81% in Q3 2021 compared to Q3 2020. Average household income was up 3.17% over the same period.

** See commentary from latest TransUnion SA Vehicle Pricing Index press release

***Q3 2021 wave of TransUnion South Africa Consumer Pulse Study – data collected 10-16 August 2021 in an online survey of 1,100 adults.