Here’s how much the average personal loan is in South Africa

 ·2 Apr 2020

Consumer credit reporting agency, TransUnion has published its South African Industry Insights Report (IIR) for Q4 2019, providing  a view of the state of the consumer credit market in the latest quarter prior to the outbreak and spread of Covid-19 in South Africa.

The economic and consumer landscape is changing drastically right now due to the, and the 2019 Q4 numbers will serve as a baseline for when additional strain started to be felt.

Summarised the results indicate that all consumer lending products showed growth in delinquency rates in Q4 2019, except for bank personal loans, which recorded the largest year-on-year (YoY) growth in account originations – up 30.5%.

Although bank personal loans showed the largest YoY originations – a measure of new accounts opened – growth in the latest quarter, the figure is less than the growth recorded in early 2019 where there was a +50% growth. This can be attributed to the reappearance of non-bank personal loans, TransUnion said.

Delinquency rates in the non-bank personal loans category saw a consecutive increase over the last 9 quarters; this is the biggest increase in YoY delinquency rates – up 490 basis points (bps) to 26.1% in Q4 2019, TransUnion said.

The bank personal loans category now enjoys 4 consecutive quarters of uninterrupted growth, surpassing credit cards as the most widely held major consumer credit product, the report showed.

This is believed to be driven by a shift by traditional banks to acquire more short- term, low-value personal loans in response to non-bank competition in this product offering.

As such, average originating amounts for new bank personal loans declined by 7.8%.

Although bank personal loans showed the largest YoY originations growth in the latest quarter—up 30.5%–this represents a cooling compared to the rate of annual growth seen earlier in 2019, where it peaked at over 50%.

This continued trend is likely an indication of strong demand for credit by consumers; in difficult economic times, consumers often use personal loans as a source of liquidity to help pay other bills and fund day-to-day expenses.

Non-bank personal loan

The non-bank personal loan market showed extremely high growth in balances, as originations grow steadily, TransUnion said. Delinquencies continued to deteriorate rapidly—a reflection of consumers under stress.

The latest quarter noted a reversal in a decline in originations growth in the prior three quarters. As well as recording growth in originations, non-bank personal loans also showed the highest growth in total outstanding balances, up 31.6% YoY in Q4 2019, signifying both renewed demand from consumers and increased appetite from lenders to meet this demand, the credit expert said.

“Perhaps more significant was where this growth came from: roughly two-thirds (68%) of balance growth came from existing lenders, but almost a third (32%) came from lenders who were not in the market just a year ago.”

New market entrants are predominantly those considered to be in the FinTech space and as wider TransUnion research has shown, lending by this group of providers in South Africa is very heavily focused on younger consumers.

Total outstanding balances reached their highest growth level over the last three years in Q4 2019 (31.6% YoY) as average balances per account increased by 23.8% YoY, the credit expert said.

Non-bank personal loans, which witnessed the biggest YoY increase in delinquency rates (490 bps), saw a shift in originations risk, with more new accounts being extended to consumers in riskier credit tiers.

In the latest quarter, 75% of new non-bank personal loans were to below-prime consumers, compared to 66% a year ago, TransUnion said.

The subprime category alone accounted for almost half (48%) of originations, up from 40% in the prior year quarter.

Non-bank personal loan delinquencies have been deteriorating since 2016. Despite this persistent trend, non-bank lenders continue to book new accounts at the bottom end of the risk spectrum.

“While it is important that consumers across the risk spectrum continue to have access to credit in order to fund necessary household spending, it is equally vital that lenders understand the risk levels in their portfolios and have strategies in place to effectively manage that risk,” TransUnion warned.

“Particularly in the non-bank personal loan space, lenders need to monitor these rising risk levels and how even small economic shocks, such as inflation, electricity and fuel hikes, may impact their ability to meet their debt obligations – more so for larger scale, prolonged economic downturn,” it said.

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