The pandemic has dampened growth for the credit card market in South Africa as originations plummet and balances remain flat, new data from credit reporting agency, TransUnion shows.
The TransUnion Q4 2020 Industry Insights Report (IIR) found that ‘credit card’ was the only consumer credit product category not to record an increase in balances over the reporting period, remaining broadly stable at -0.6% Year-on-Year.
Enquiries and originations both fell across all major consumer credit categories, TransUnion said, with lenders remaining cautious, targeting lower risk borrowers.
Originations, the process by which a borrower applies for a new loan, and a lender processes that application, continued to fall but show signs of a rebound.
Home loans recorded a comparatively lower fall of 14.2% YoY in the most recent quarter (-62.4% YoY in the previous quarter), while new vehicle finance loans saw the smallest YoY decline of just 6.0% in Q3 2020.
TransUnion said that outstanding balances increased across most product categories. Home loan balance increased by 6.1% YoY in Q4 2020 – pointing to consumers investing in their homes due to work-from-home pandemic circumstances.
Balances were also boosted by a 31.6% YoY increase in the average new home loan granted, it said. Vehicle finance loans delinquency rates, meanwhile, remained broadly unchanged.
“Challenging economic conditions mean household finances remain stretched, and both consumers and lenders continue to take a cautious approach to credit as a result. Like many other markets around the world, consumers are having to make difficult decisions about which debts to prioritise,” the consumer reporting agency said.
“Although annual trends indicate a challenging credit market, when we measured the recent quarters, we see a road to recovery. However, there is still significant uncertainty around the vaccine rollout, general easing of restrictions, and the rebound in macroeconomic conditions, and as such it is too soon to expect a sustained recovery in key credit metrics.”
Credit Card Summary
The annual rate of balance growth has remained flat when compared to the same time last year. The marginal decline in credit card balances was likely driven by the continued slow-down in originations, TransUnion said.
“Credit card is the only credit product to show accelerated origination decline since the beginning of the pandemic largely due to lenders implementing tightened credit granting policies in the midst of economic uncertainty.”
TransUnion said that where lenders are advancing new credit card accounts, analysis suggests they are focused on less risky consumers – those with a higher credit score. Issuers are being ultra-cautious, especially when granting new credit cards, it noted.
Compared to the same period in 2019, in the third quarter of 2020 the portion of new credit card originations to super prime consumers was up by 6 percentage points, from 57% to 63%, and was significantly up from the 48% seen in 2018.
“As a result of a greater focus on lower risk consumers for new credit card openings, the average credit limit for cards was up 14% year-on-year.”
Credit card was the only product to show an improvement in delinquencies in Q4 2020, declining marginally by 10 bp YoY to 12.0%. “Considering the current deterioration in economic conditions and the dramatic extent of delinquency increases in other products, this is surprising,” TransUnion said.
“It is likely that consumers are doing everything that they can to protect their continued access to this product type as credit cards provide a much needed source of liquidity to cash-strapped consumers,” it said.