South Africans are struggling to pay off their credit cards – here’s how much they owe

Consumer credit reporting agency TransUnion has published the findings of its Q1 2021 South Africa Industry Insights Report, showing how ongoing uncertainty and financial hardship caused by Covid-19 has impacted the consumer credit market.

Consumer and lender appetite for new credit remained subdued in the latest quarter, with originations—a measure of new accounts opened that is a function of both supply and demand— continuing to fall across all major consumer credit categories, it said.

Overall, the number of consumers participating in the credit market has reduced by 3% over the last year.

By contrast, outstanding balances have increased across all consumer credit categories – indicating lenders are focused on extending credit to existing customers rather than onboarding new borrowers, TransUnion said.

However, when looking at the drivers of change in balance growth, the data pointed to a continued divergence between consumers who had been financially impacted by the pandemic and those who hadn’t.

In the unsecured lending space, balance growth is reflective of the liquidity provided by these products and suggests that financially impacted consumers are utilising these much-needed sources to help balance household finances.

“This supply/demand mismatch has caused a significant rebound in house prices and has caused the average new loan amount to increase 44% year-on-year (YoY) in Q1 2021 as a result, the consumer credit expert said.

“Delinquencies continued to climb for most of the major consumer credit categories, with the exception of vehicle finance loans, which showed a small improvement. As in previous quarters, the increase in missed payments has also contributed to growth in outstanding balances across most products.”

Carmen Williams, director of research and consulting for TransUnion South Africa, said: “The impact of Covid-19 on consumer finances remains the primary driver of credit-market trends. Lenders continue to focus on managing risk within existing customer portfolios rather than attracting and bringing on new borrowers as they implement tighter risk management policies.

“Consumers are very much polarised, with those experiencing financial hardship relying on existing sources of credit to help them through these difficult times. On the other hand, those who have maintained or improved their income still have significant purchasing power and capacity to borrow to finance home purchases.”

Credit card balance growth

Outstanding credit card balances, which are a function of multiple factors—including reliance on credit for liquidity, delinquency build-up, and even shopping habits—continued to increase YoY in Q1 2021 (up 7.7%).

However, increases weren’t evenly distributed, and a clear generational divide has emerged. Younger consumers increased their outstanding credit card balances more than older generations, TransUnion said.

Delinquency increases most pronounced for non-bank lenders

Credit performance is a lagging indicator, with consumers typically exhausting other sources of funds before defaulting on a loan. In the latest quarter, there was a continued deterioration across most of the major consumer lending categories with the exception of vehicle finance loans.

The continued deterioration in delinquencies is reflective of the impact of the pandemic and, more recently, the end of deferral programs for many borrowers.

The latest TransUnion analysis shows the difference in delinquency performance between bank and non-bank lenders across the personal loan’s category.

Both recorded an increase in delinquencies, but it was far more pronounced for non-bank unsecured personal loan lenders. This trend pre-dates Covid-19 but has been amplified by the impact of the pandemic.

Despite declining demand and supply dynamics, credit card balances increased as lenders focus on increasing limits for existing cardholders.

Credit card is the only credit product to show high levels of continued origination decline since the beginning of the pandemic (down 23% YoY in Q2 2020, 63.2% YoY in Q3 2020 and 48.6% YoY in Q4 2020).

This is largely due to lenders implementing tightened credit-granting policies in the midst of economic uncertainty. Lenders remain focused on extending credit to existing customers rather than onboarding new borrowers, TransUnion said.

Average balances increased by 12.8% and total credit limits increased substantially by 21.7% while new loan amounts increased by only 4.2%.

Outstanding credit card balances, which are a function of multiple factors—including reliance on credit for liquidity, delinquency build-up, and even shopping habits—continued to increase YoY in Q1 2021 (up 7.7%).

However, increases weren’t evenly distributed, and a clear generational divide has emerged. Younger consumers increased their outstanding credit card balances more than older generations.

Credit card delinquencies deteriorated by 20 bps to 12.0%. Generally, delinquency rates have remained stable at around 12% over the last few quarters after peaking to 12.8% in Q2 2020 during the core pandemic lockdown period, TransUnion said.

This stability indicates that consumers continue 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.

Read: Struggling middle-class South Africans are spending more than half their salaries to pay off debt