South African Consumer Credit Health Continues to Improve Marginally
The Q2 2017 TransUnion (NYSE: TRU) Consumer Credit Index (CCI) increased and continued to indicate marginally improving consumer credit health. The encouraging data come in the wake of news that South Africa fell into recession in Q1 after two consecutive quarters of declining GDP. However recent marginal improvements in retail sales indicate that economic conditions may have subsequently improved.
The CCI climbed to 53.8 in Q2 from 50.8 in Q1 and 49.2 a year earlier. This is due to slight improvements in some credit indicators and in household debt ratios and cashflows. An index level of 50 is considered the ‘break-even’ point, with lower scores reflecting worsening credit health, which is characterised by an increase of new accounts in default (3 months in arrears), as well as distressed borrowing (rising utilisation of store cards and credit cards).
Positive trends may be emerging, but not strongly enough yet to consider them robust or ubiquitous. Softening inflationary pressures, a firmer currency and the drought relief especially on maize crops have all eased pressure on consumers. However, low economic growth, high unemployment, low wage growth and uncertainty in a volatile global economy all pose significant pressure and risk for consumers.
“TransUnion payment profile data show that generally high indebtedness and weak economic growth remain challenges for households, emphasising the importance of cautious, diligent lending,” said Lee Naik, CEO of TransUnion South Africa.“Also, the report notes that declines in the rate of CPI inflation led to the South African Reserve Bank (SARB) lowering the repo rate from 7.00% to 6.75% in Q3 2017, the first reduction in the repo rate in half a decade. This will not have a significant impact on consumers’ wallets, but they may benefit from further rate cuts later in the year as many economists are predicting.”
TransUnion payment profile data has also shown an increase in home loan and auto loan delinquencies. Even though inflationary pressure has eased, recovering from large repayment defaults such as in home loans and auto loans is more difficult and improvements in these products may take longer for consumers to recover.
“Our advice to consumers is that if you have experienced unexpected expenses and are struggling to meet your debt repayment obligations speak to your lending institution and ask for a holiday payment or to restructure your debt.” said Naik. “Lending institutions are more likely to help and make alternative arrangements.”
Approximately only 0.5% of all credit active consumers access their TransUnion credit report annually, and Naik encourages consumers to proactively manage their debt and be more aware of the status of their debt.
Taking into account the numerous consumer risks and pressures, the Q2 report says that the index level should be interpreted with cautious optimism while being mindful that many households still experience difficulty in coping with debt loads.
About the CCI
The CCI takes into account rates of early defaults, defined as consumer loan accounts that are three months in arrears, drawing from around 50 million accounts held by some 22 million individual borrowers. It also looks at distressed borrowing indications on revolving credit (store cards and credit cards), measuring ZAR145 billion of revolving consumer credit to gauge the degree of household financial duress.
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