Experian South Africa has released its Consumer Default Index (CDI) for Q1, showing which South Africans – and which debt categories – have suffered the most as a result of the economic downturn brought by the Covid-19 pandemic and nationwide lockdown.
“The continued impact of a worsening general economic environment in South Africa along with the early impact of the Covid-19 pandemic has resulted in the Consumer Default Index reaching its highest level over the past five years at a composite level.
“Additional macro forces such as increasing unemployment and the lack of economic growth have had a significant impact on consumer’s ability to repay debt,” said Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa.
The overall index reached 4.94% in April 2020, tracking significantly higher Y-o-Y from 4.11% in April 2019, amounting to R1.5 trillion in outstanding consumer debt, the group said.
The primary driver of the significant increase in the CDI was the rise in first time defaults across secured lending products, with the home loans index increasing from 1.68% to 2.32% and the vehicle loans index from 3.88% to 4.34% from April 2019 to April 2020.
Similarly, credit cards and personal loans saw an increase from 6.56% to 7.47% and 8.61% to 10.19% Y-on-Y respectively.
The only index that continued to show a reduction in the rate of first-time defaulters was the Retail loans index, which improved significantly from 17.29% in April 2019 to 12.75% in April 2020.
“A large portion of consumers that have access to retail accounts had already experienced financial distress prior to the Covid-19 outbreak, and thus the reduced rate of first time defaulters is not an indication of an improving financial situation for these consumers but rather one of entering financial hardship albeit at a slower rate,” Experian said.
According to Experian, the South Africans most affected by the economic downturn are those with the highest exposure to secured lending and other banking products.
These South Africans are increasingly more affected than those who experienced financial hardship before the Covid-19 pandemic, the group said.
This has been felt particularly hard in the higher income populations.
The middle-high to high-income (luxury Livinl) category only makes up 2.5% of the South African credit active population, and is best described as consumers with an average opening home loan balance in excess of R1.2 million (54% owning at least 1 home) and an average opening vehicle loan balance greater than R450,000.
This group is highly exposed to secured credit, resulting in a CDI deterioration from 2.47 in April 2019 to 3.58 in April 2020, Experian said.
Middle income (aspirational achievers), meanwhile, make up 9.3% of the credit active population, and can be described as consumers with an average opening home loan balance of ~R550,000 (43% owning at least 1 home) and an average opening vehicle loan balance greater than R250,000.
This group is similarly exposed to secured credit resulting in a CDI deterioration from 3.41 in April 2019 to 4.37 in April 2020, Experian said.
But even with the notable issues here, South Africa’s debt problems are persistent across all categories, with even the “Money Conscious Majority” – who make up the majority of the South African credit active population (40%) – seeing a similar deterioration in their CDI from 6.28 in April 2019 to 6.81 in April 2020.
“Whilst exposure to secured credit facilities is lower in this group – less than 23% own a property with an average opening vehicle loan balance of ~R160,000 – exposure to unsecured facilities like personal loans and retail credit is high,” Experian said.
“When looking at this group in isolation, it was established that a large portion of this population missed payments at the end of March and again April. This is concerning due to the magnitude of this population and their dependency on unsecured credit facilities to cover month-to-month living expenses.”
Millennials and people who are dependent on credit to support their lifestyles have been particularly hard-hit, the data shows.
“It is evident from the latest CDI results that segments of the South African credit active population that were previously less impacted by the distressed economic environment, are no longer immune to financial struggles.
“The Covid-19 pandemic with the knock-on impact of various industries been locked down, seems to have impacted consumers across all financial statuses,” Experian said.