TransUnion Consumer Credit Index remained above 50 in the third quarter

South African consumer confidence remained flat in the third quarter of 2018, with a slight decline in TransUnion’s (NYSE: TRU) latest Consumer Credit Index (CCI) reflecting ongoing uncertainty about the state of the economy.

The CCI, which was released today, fell by one point to 51, with the key indicators of consumer borrowing and repayment behaviour showing relatively neutral levels of consumer distress. An index level of 50 is considered the ‘break-even’ point for improving consumer credit health.

“Last week’s interest rate hike by the Reserve Bank added to the general uncertainty we’ve been seeing from South African consumers in the past quarter. The fact that the index remains above 50 is due to reasonably cautious consumer credit behaviour, slow overall new debt growth, and stable interest rates,” said Priven Moodley, Director: Consulting at TransUnion Africa.

The report highlighted constrained cash flow, difficult employment conditions and recent fuel price increases as significant challenges for households.

“Household cash flow didn’t grow on a year-on-year basis in Q3, and has remained flat since 2015,” said Moodley. “Employment conditions were poor, with net job creation negligible after adjusting for seasonality. Transport and basic utilities price increases have also been considerable handbrakes on household discretionary income.”

While early defaults rose, distressed borrowing declined slightly. However, Moodley cautioned that defaults could rise in the quarters ahead, and that revolving credit borrowing is rising. “Given generally weak employment and business conditions, the trend in household defaults remains a risk to the overall index. Also, card providers increased aggregate credit limits at the fastest pace since 2014, possibly to accommodate goods inflation and help cushion the impact of fuel prices on households. This may indicate more credit distress than implied by the headline utilisation data and may be a future risk to the overall CCI.”

The report notes that household debt service costs changed very little on a year-on-year basis, but with the Reserve Bank hiking rates last week, debt service costs would escalate into 2019.

Moodley says the lack of significant further decline after a torrid Q2 may be seen as a positive outcome in light of numerous macroeconomic indicators remaining weak in Q3, notably employment and industrial production indicators.

The CCI measures borrowing and repayment activity across over 20 million individual borrowers and nearly 53 million credit accounts. The index also incorporates key macroeconomic data compiled in partnership with ETM Analytics, a macroeconomic advisory firm.

About the CCI

The CCI takes into account rates of early defaults, distressed borrowing, household income and inflation, and debt repayment costs to gauge the degree of household financial duress.