South African Consumer Credit Health Improved Marginally in the Final Quarter of 2015, but Headwinds Loom in 2016

TransUnion released today the Consumer Credit Index (CCI), which decreased marginally in Q4 2015 to 52.1 from 52.3 in Q4 2014. Consumer credit behaviour remained stable in Q4 2015 and neither materially worsened nor improved from the third quarter. Encouragingly, the number of new defaults declined 5.1% from a year earlier, while distressed credit and store card utilisation, a measure of distressed borrowing, remained roughly stable.

The CCI is based on a 100-point scale, where 50.0 is the break-even level between improvement and deterioration of credit health. A number greater than the 50.0 break-even point shows an improvement in credit health.

The index is made up of three components: consumer credit behaviour (borrowing and repayment), household cash flow conditions, and debt servicing costs.

“Despite warnings of worsening macroeconomic conditions, consumer behaviour does not yet show signs of falling credit health. This is partly the result of an already heavily indebted household sector choosing to be more cautious, and partly the result of more prudent lending standards in the wake of the unsecured lending boom”, said Geoff Miller, Regional President of TransUnion Africa.

Miller also cautioned against complacence. “Macroeconomic conditions can take some time to reflect fully in consumer behaviour. A weaker rand exchange rate raises the cost of living while also compelling the central bank to raise interest rates, so the headwinds in 2016 could become fairly substantial.”

Household cash flow remained roughly steady in the fourth quarter, but, according to Miller, higher prices on imported goods due to rand weakness is a threat that could plausibly cause the cash flow indicator to turn negative in the first half of 2016. “Since the rapid rand weakness in December 2015, we’re strongly focused on the rand as a potentially big risk factor in 2016”, he added.

Household debt service costs increased during the fourth quarter due to slightly higher household indebtedness and higher interest rates. The Reserve Bank raised the benchmark repo rate from 6% to 6.25% in November 2015. But many analysts expect the pace of rate hikes to accelerate in light of a dramatic devaluation in the rand exchange rate which began in December.

Russell Lamberti, Chief Strategist of ETM Analytics, the firm that constructed the CCI in collaboration with TransUnion, noted that currency instability was one of the key factors in the interest rate outlook. “The Reserve Bank hiked interest rates by 50 basis points in January 2016, and more such moves may be in store if the currency does not stabilise soon and begin recovering.” He added that higher interest rates will have a stronger negative impact on the CCI in the firstt quarter 2016. “Interest rate hikes will cause many of the most financially vulnerable borrowers to default. The key for managing this process will be for credit providers to focus on loan quality and for borrowers to be more prudent than usual.”

Released on a quarterly basis to the public, the TransUnion CCI measures aggregate consumer loan repayment records; tracks the use of revolving consumer credit facilities as an indicator of distressed borrowing; estimates household cash flow as a means of determining financial pressure/relief; and quantifies the relative cost of servicing outstanding debt. These aspects are then combined into a single numeric score of consumer credit health. The index is compiled by the TransUnion Credit Bureau with technical support from market intelligence firm ETM Analytics.

TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key, publically available macroeconomic variables impacting household finances. Unlike other indices in the market, the CCI is driven by objective market data rather than consumer surveys or questionnaire responses.

Analysis suggests that the CCI may be a good leading indicator for business activity in certain economic sectors, particularly those more closely related to consumer spending. A full report on the quarterly TransUnion CCI can be found on

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