New data from TransUnion shows the average loan amount in South Africa- namely how much the country’s citizens borrow from the bank for their own personal use, based on figures in the fourth quarter of last year.
The findings are contained in a Q4 2020 South Africa Industry Insights Report from the credit reporting agency. They show that bank personal loan originations continue to decline while balances grow moderately, primarily driven by an increase in average new account loan amounts.
The improving delinquency trend observed between Q2 2019 and Q1 2020 has reversed as economic conditions take its toll on consumers, TransUnion said.
This latest analysis covers a period when unemployment in South Africa hit a new record and GDP fell. During the latest period, enquiries—a measure of consumer demand—and originations—a function of both supply and demand—both fell across all major consumer credit categories.
At the same time, delinquencies continued to climb for most products with the exception of credit cards, which saw a marginal improvement. The increase in missed payments also contributed, in part, to an increase in outstanding balances across most product categories, the credit union said.
Where lenders are advancing new credit card accounts, analysis suggests they are focused on less risky consumers consumers with a higher credit score. Issuers are being ultra-cautious, especially when granting new credit cards.
Carmen Williams, director of research and consulting for TransUnion South Africa, said: “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.
“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.”
Despite the easing of lockdown measures, originations continue to decline but at a slower pace. Balances grew modestly and delinquencies continued to deteriorate rapidly.
Originations for bank personal loans, although still down significantly YoY (-39.6%), declined at a lower rate than the previous quarter (-60.9% YoY in Q2 2020). While this product category is highly dependent on people coming through the door, origination growth remained low despite the easing of lockdown restrictions in the latest quarter, TransUnion said.
Bank personal loan lenders continued to approach the market with caution as credit granting criteria tightened, it noted.
“The pace of balance growth has remained fairly consistent over the last year with the latest quarter up 5.9% YoY, slightly down from the previous quarter (8.7% in Q3 2020). Some of this growth is coming from originations.”
The bureau said that while origination volumes were down substantially, close to 800,000 new accounts were booked during the quarter and the average loan amount for these bookings increased by 16.9% YoY pushing total average balances to increase by 12.2% YoY.
“Another driver of this balance growth is the fact that, in some cases, bank personal loans were being used as a payment holiday mechanism where loan balances are increased to provide liquidity. This leverage is helping certain consumers avoid being delinquent and at the same time is increasing overall outstanding balances,” it said.
Serious delinquency rates deteriorated for bank personal loans YoY in Q4 2020 (up 130 bp to 22.4%) marking the third consecutive quarter of deterioration, the bureau’s data found.
“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.”
As with bank personal loans, while non-bank personal loan originations were still down significantly YoY (-24.0%), the pace of decline was at a lower rate compared to the prior
quarter (-51.1% YoY in Q2 2020).
After three consecutive quarters of strong growth, in Q2 2020, non-bank personal loans originations dropped by 51.1% as expected, as many 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.
Despite the easing of these restrictions, originations remain considerably lower than expected, likely driven by a cautious stance from lenders as delinquencies continue to deteriorate rapidly.
Non-bank personal loan delinquencies have been deteriorating since 2016, up by 640 bp YoY to 32.5% in Q4 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.
“The payment priorities of consumers are becoming even more defined as we navigate through the current crisis. Lenders need to be constantly monitoring and adjusting their underwriting criteria and
portfolio risk management strategies in order to accommodate increasingly challenging household finances,” said Williams.