Volatile Economic Conditions Continue to Impact the South Africa Consumer Credit Market

The newly released TransUnion (NYSE: TRU) Q2 2019 South Africa Industry Insights Report reveals significant outstanding balance growth across most major consumer lending categories, except for home loans which remained broadly flat. Unsecured lending accounts—which include credit cards, bank and non-bank personal loans—recorded the strongest growth rates, with outstanding balances up 12.1%, 9.6% and 13.0% respectively, year-on-year (YoY) in Q2 2019. This outpaced the rate of growth for secured lending products, including vehicle finance and home loans, which were up 5.4% and down 0.2% respectively over the same period.

Originations, the measure of new accounts opened, slowed in the recent quarter, with personal loans the only category to show YoY growth. Bank-issued personal loan originations grew 22.1% YoY in Q2 2019, while non-bank personal loan growth was less pronounced, but still robust at 10.9%. All other major consumer lending categories saw a YoY decline in originations in the most recent quarter, including credit cards (-4.2%), vehicle finance (-3.1%) and home loans (-13.2%).

The increase in balances over the past year, especially across unsecured credit products, indicates that consumer demand for credit remains high. However, there are signs that lenders are pulling back from issuing new accounts to consumers. This drop in new account activity by lenders may be in response to continued challenges in the economic environment and the consequent increases in delinquency rates in most major lending categories. In this climate, banks and other lenders may be choosing to focus more on existing customers rather than new ones.

In the unsecured lending categories, delinquency rates rose for both credit cards and non-bank personal loans. The same was also true for the secured lending categories of vehicle finance and home loans. Only bank personal loans recorded an improvement in delinquency rates.

“We continue to see a divergence in trends between unsecured and secured lending categories. As challenging economic conditions continue to prevail, more and more South African consumers may be using unsecured credit, including credit cards and personal loans, for everyday expenses. The reliance of this consumption lending for necessities as opposed to luxuries or “nice to have” purchases is something that warrants continued monitoring,” said Carmen Williams, director of research and consulting for TransUnion South Africa. “Our report shows South African lenders have continued to support consumers during uncertain times. Their continued ability and confidence to make credit available will have a significant effect on the future direction of the economy. As lenders look for ways to give consumers access to credit while effectively managing against rising delinquencies, they will need to take advantage of more sophisticated and dynamic data and analytics techniques that give better risk insights. The lenders that manage risk most effectively will be the ones that prosper.”

Q2 2019: Consumption lending on the rise


YoY % Change in Originations

YoY % Change in Total Outstanding Balance

Serious Delinquency Rate (1)

YoY Basis Points (bps) Change in Delinquency Rate

Credit card




60 bps

Bank personal loans




-120 bps

Non-bank personal loans




720 bps

Home loans




30 bps

Vehicle finance




60 bps

  1. Account-level serious delinquency rate, measured as percentage of accounts three or more payments past due

Unsecured lending underpins consumption borrowing and debt consolidation

Consumer demand for unsecured credit remained high, and there was a notable resurgence in lending by non-bank personal loan providers, which prior to this latest quarter (Q2 2019) had seen negative originations growth YoY in each of the four previous quarters.

As well as significant YoY originations growth for bank and non-bank personal loans in Q2 2019, both personal loan types also recorded high balance growth, up 9.6% and 13.0% respectively, as did credit cards at 12.1%. To be sure, credit card and personal loan funds can be used for an array of purposes, from buying food and petrol to funding vacations and large-ticket purchases. However, there is growing consensus in the lending community that consumers are increasingly using credit cards and personal loans to fund everyday household expenses (i.e. consumption lending) or for debt consolidation, emphasizing just how important unsecured credit is to providing a valuable lifeline to consumers struggling to balance their finances.

Secured lending trends driven by very different levers

Although general economic uncertainty resulting from a fluctuating GDP, stubbornly high unemployment rates and below-inflationary wage growth affect the whole of the consumer credit market, there are other structural and historic factors that influence key trends in the secured lending categories (home loans and vehicle finance).

Williams observed: “Home loans are often seen as an indication of consumers’ longer-term sentiment – the more confident the consumer, the more likely they are to make a major financial commitment like buying a home. However, it is important not to read too much into one quarter’s data. Although there was a significant YoY drop in originations in Q2 2019 in this key lending category, this is because it compares to a very strong quarter the year before—Q2 2018—where we saw a peak in home loan originations. It’s important to look at the longer-term trends for home loans, which have seen broadly stable total balances with much less pronounced changes in originations growth. The next few quarters of data for home loans will give us a better understanding of the longer-term trend and the likely direction of the market.”

In the vehicle finance space, the structure of the products themselves has had a significant impact on recent performance. Williams continued: “With many vehicle loans featuring balloon payments at the end of the term, one of three things is happening: consumers will fulfil their loan obligations and repay their debt in full, they will roll their debt into another vehicle loan, or they will struggle to make the payment and default. This can put pressure on vehicle loan providers and requires careful management and a detailed understanding of their overall lending portfolio. We have certainly observed impacts on the broader vehicle loan market, which has seen steadily rising delinquency rates over the past eight quarters.”

Delinquencies continue to rise across most major lending categories

Over the past year, as lender strategies and consumer behaviour have evolved in response to shifting macroeconomic conditions, there has been a mixed picture for delinquencies. Some categories have seen steady increases in delinquencies over the past year, while others have seen some quarterly volatility but remained generally flat. Arguably, this trend has continued in Q2 2019, save for in the personal loan space – here, there was a significant divergence in performance when looking at delinquencies. Whereas bank personal loans recorded a YoY improvement in Q2 2019, with the account-level serious delinquency rate dropping 120bps to 21.5%, non-bank personal loans delinquencies deteriorated significantly, increasing 720bps to a rate of 27.7% – meaning more than a quarter of all non-bank personal loans are now seriously delinquent.

Williams explained: “Non-bank lenders often provide credit to higher-risk borrowers, and as a result expect to see higher levels of delinquency. What remains to be seen is whether this trend of rising delinquencies continues and how lenders will respond. There is clearly consumer demand for this product, but non-bank lenders may become more selective in the customers they are willing to approve in order to manage delinquency levels.”

Although credit cards recorded a 60bps increase in the serious delinquency rate to 12.3%, this quarter was the category’s first YoY deterioration since 2017. Although both major secured loan categories—home loans and vehicle finance—also recorded YoY increases, of 30bps and 60bps, respectively, theirs was a continuation of a more sustained increases in serious delinquency rates. For home loans, it was the fourth consecutive quarter in a row where performance had deteriorated and for motor finance, it marked eight consecutive quarters of incremental increases in serious delinquencies YoY.

Looking at the whole of the consumer credit wallet

As turbulent economic conditions remain, lenders need to become more sophisticated in how they view a consumer’s creditworthiness. Only through a better understanding of a consumer’s entire wallet of products can they make a truly informed lending decision.

“There are a number of important dynamics at play in the market – volatile economic conditions, as well as regulatory factors like the Debt Intervention Act, are all causing credit providers to reassess their lending strategies. Understanding the potential risk of a consumer can often be difficult, but with advanced data techniques it is possible for institutions to continue lending while managing the risks of their portfolio. Historically, creditworthiness was assessed based on a consumer’s financial standing at a particular point in time. However, trended data analysis now means lenders can see how a consumer’s use of credit has changed, or remained stable, over time, giving lenders greater clarity and enabling them to make a more informed decision. Lenders play an increasingly important role in the economic health of South Africa, and it is essential they access the best data they can so they can continue to support consumers during tough times,” concluded Williams.