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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 report shows that the consumer credit market resisted mounting recessionary pressures and continued to grow.

Both outstanding balances and originations (a measure of new accounts opened) across all major product categories showed a year-on-year (YoY) increase. However, it appears this growth might be coming at a cost as delinquencies continued their upward trajectory.

All products experienced YoY increases in delinquency rates in Q4 2019 with the exception of bank personal loans, which have now seen an improvement in YoY delinquencies in the last three consecutive quarters.

The report provides 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.

Carmen Williams, director of research and consulting for TransUnion South Africa, said the Q4 2019 figures would provide a valuable pre-Covid-19 baseline point.

“With COVID-19 changing the economic and consumer landscape at pace, the Q4 2019 IIR provides a benchmark for the last full quarter before the impacts of the pandemic start to be felt and understood. We expect future quarters will show additional strain as the effects are realised.”

VAF Summary

The vehicle finance (VAF) market continued to show signs of sustained strain as originations remained flat and delinquencies continued to rise steadily, said TransUnion.

Lender portfolio management and effective risk reduction strategies from originations and throughout the account lifecycle are critical to contain this continued deterioration in delinquencies as delinquencies accelerate substantially in Q4 2019.

VAF origination volumes increased, though slightly (1.6% YoY), for the first time since Q2 2018. Although marginal, this uptick could be as a result of a combination of both consumer demand as well as supply.

As vehicle prices continue to slow YoY for both new and used vehicles and have remained below inflation for the last two years, this has prompted consumer appetite as these assets have become more affordable, TransUnion said.

At the same time, lenders’ are likely keen to move metal and structure deals that are seemingly affordable to consumers in the short term.

In Q4 2019, total VAF balances grew steadily at 7.7% YoY. The driver of balance growth is not originations but instead, higher average new account loan amounts which increased by
2.1% YoY to R300,547.

VAF serious level delinquencies have been steadily deteriorating for the past three years, more than doubled over this time, and stood at 6.9% in Q4 2019.

VAF industry dynamics are believed to be a contributing factor, with concerns around balloon payments and customers’ ability to repay or refinance these large payments at the end of their loans, said TransUnion.

To accommodate consumer affordability challenges, lenders have recently introduced repayment terms of up to 96 months, it said. “The rate of delinquency deterioration has accelerated
considerably for the latest quarter, up 190 bp compared to Q4 2018, marking the biggest annual deterioration to date.”

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