What credit card debt looks like in South Africa right now

TransUnion has published the findings of its Q3 2021 South Africa Industry Insights Report, showing how much consumers owe on their credit cards as we head into the festive season.

The consumer credit reporting agency said that with unemployment still at record levels, and consumer price inflation above average household income growth, the pressure on South African finances remains, and is clear in the latest consumer credit data.

The report shows a number of emerging trends that highlight differences in credit behaviours by consumer generations as well as divergent performance across product categories.

Although credit card originations fell YoY in the latest quarter (-23.5% in Q2 2021), outstanding credit card balances continued to grow, up 14.4% YoY in Q3 2021, TransUnion pointed out.

“Throughout the pandemic, South African consumers have relied on credit cards for both the utility they provide, particularly in facilitating the growth in online transactions, and to access a flexible source of credit to meet household bills when finances are under pressure.”

While YoY originations increased in most categories, the consumer credit market in South Africa is still below pre-pandemic levels, the credit agency said. This is particularly true in the unsecured lending space (credit cards and personal loans), where the origination volumes are between 10%-41% lower than their Q2 2019 levels.

Lenders continue to impose restrictive credit lending policies due to economic uncertainty, TransUnion said.

Credit card providers still prioritise extending credit to existing customers rather than onboarding new clients. Average balances increased by 16.8% over the period and total credit limits increased by 18.9%.

The new account credit line increased by 11.1%.

TransUnion said that outstanding balances for credit cards (up 14.4% YoY) are mainly due to consumers needing to supplement income negatively impacted by the pandemic to maintain liquidity and finance immediate household needs.

In terms of outstanding balances, there’s a disparity in the distribution of increases. The current trend suggests younger generations are increasing their outstanding credit card balances faster than older generations.

The Q3 2021 YoY change for Millennials (born 1980–1994) and Gen Z (born 1995–1980) was 11% and 12%, respectively, compared to 9% for Gen X (1965–1979) and only 6% for Baby Boomers (born 1946–1964). The convenience of a credit card is becoming increasingly important for younger generations as they transact more online.

Serious delinquencies (more than three months of missed payments) on credit card accounts have increased by 120 bp to 13.4%, the highest level since the first quarter of 2018 (13.9%). The increase in the delinquency rate reverses the progress made since Q2 2020 (12.8%). For the past four quarters, delinquency rates have remained around 12%.

“This increasing trend will likely extend into the New Year with the usual spike in spending expected in quarter four. Delinquent consumers will need to accelerate their repayment efforts to prevent further deterioration in their credit status.

“The increase in outstanding balances and delinquency can be partially attributed to several factors, including unexpected consumable purchases during July 2021 due to rioting in several parts of the country, the pandemic’s economic impact, and significant fuel price increases,” TransUnion said.

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