New data from TransUnion shows the average loan amount in South Africa – namely how much the country’s citizens are borrowing from the bank for their own personal use, and during a particularly stressful economic period.
The findings are contained in the latest quarterly overview of Consumer Credit Trends report, from the credit reporting agency.
It found that bank personal loan originations have declined while balances continued their robust levels of growth, primarily driven by an increase in average new account loan amounts the improving delinquency trend has reversed as economic conditions take its toll on consumers.
Originations for bank personal loans dropped by 60.9% YoY in Q2 2020. This product category is highly dependent on people coming through the door, TransUnion said.
“From a bank’s perspective, while selected branches remained open during level five and four Covid-19 lockdown restrictions, foot traffic was limited as fewer consumers ventured out.”
The pace of balance growth has remained consistent over the last year with the latest quarter up 8.7% YoY, similar to last quarter.
Some of this growth is coming from originations. While origination volumes were down substantially, more than 500,000 new accounts were booked during the quarter and the average loan amount for these bookings increased by 43.1% YoY, the credit specialist said.
It noted that in some cases, bank personal loans are being used as a payment holiday mechanism where loan balances are increased to provide liquidity.
This leverage is helping consumers avoid being delinquent and at the same time is increasing overall outstanding balances.
Serious delinquency rates deteriorated for bank personal loans YoY in Q3 2020 (up 50 bp to 22.4%) marking the second consecutive quarters of deterioration.
“As consumers grapple with stretching their finances, it is likely that unsecured products such as personal loans and some retail accounts that do not have future utility will fall lower down the payment priority list compared to revolving products like credit cards that do,” TransUnion said.
The non-bank personal loan market has faced challenges as a consequence of lockdown measures as originations drop, balance growth remains flat and delinquencies continued to deteriorate rapidly, TransUnion said.
After three consecutive quarters of strong growth, in Q2 2020, non-bank personal loans originations dropped by 51.1% as expected, the credit agency said.
As with bank personal loans, many non-bank personal loan providers predominantly in the retail space, were impacted by level five and four Covid-19 lockdown restrictions with stores being closed as for most of the industry, physical access is required to make an application for new credit.
As a result of drastic slowdown in originations, outstanding balances for Q3 2020 remained subdued (1.0% YoY). The massive increase in average balances is largely as a result of the substantial drop in total accounts (down 19.0% YoY).
“The decrease in origination amount could be due to lenders adopting a more cautious approach to originations by granting smaller loans because of the persistent trend of deteriorating delinquencies.”
TransUnion said that non-bank personal loan delinquencies have been deteriorating since 2016, up by 620 bp YoY to 32.8% in Q3 2020.
Non-bank personal loans tend to be concentrated within higher-risk borrowers. “As such, a larger increase in delinquencies is to be expected as financial hardship will have a bigger impact proportionally amongst financially stretched consumer groups,” it said.