Credit reporting agency Transunion has published a new report showing that consumer demand for credit remains high with outstanding balances increasing across all major credit categories when compared to the same time a year ago.
The credit bureau said that consumers are feeling the effects of weak overall economic indicators, including rising unemployment and slow wage growth, which has put pressure on consumers’ personal finances.
“Consumers and lenders alike are wrestling with the continued volatile economic conditions,” said Carmen Williams, director of research and consulting for TransUnion South Africa.
“In the first quarter of the year, we observed a significant increase in the level of borrowing on unsecured lending products. We expect that, in part, this increase is due to consumers using credit to help make ends meet. In these difficult economic times, credit can be a critical lifeline for consumers who may be struggling with their expenses.”
“For lenders, it is important that they continue to make credit available to consumers who may need it, but equally important that they are making prudent lending decisions and manage the risks of their own credit portfolios. This balance is both more difficult and more necessary in light of the current challenges facing the South African economy.”
Transunion pointed to an overall increase in total balances for most credit products year-on-year (YoY) in Q1 2019, “which indicates that consumers are actively seeking new credit, and increasing the utilisation of their existing credit lines, as a means to supplement their incomes and meet their commitments,” it said.
Rising serious delinquency rates across most major lending products indicate that macroeconomic challenges have taken their toll on consumers and have compromised their ability to meet financial obligations, the company said.
Transunion found that the average South African owes R16,481 on their credit card account, while the average credit line (the amount of credit a person may borrow from) is R30,752.
The average number of credit card accounts per consumer increased marginally year-on-year from 1.4 to 1.5 over the same time period.
“This expanded access to credit could be beneficial to consumers if difficult economic conditions persist over the next several quarters, as credit cards can provide a needed source of liquidity to cash-strapped consumers, ” Transunion said.
“Overall, credit card balances increased by 6.6% YoY in Q1 2019. Following a period of elevated balance growth levels in 2017 due to the emergence of a new issuer, balance growth in 2018 stabilised.”
Account level delinquencies dropped considerably in Q1 2019 to 12.6% (-130 bp), while balance level delinquency rates increased by 100 bp to 14%, the second consecutive year-on-year increase since Q1 2017.
“This increase could be an indication that consumers are experiencing financial strain and bears watching in quarters ahead, especially in the light of increasing balance,” Transunion said.