Experian South Africa has published its quarterly Consumer Default Index (CDI) for the third quarter (Q3) 2020, which shows improvement from last quarter’s all-time high.
The CDI is designed to measure rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts.
On a monthly basis, lenders typically classify their consumer accounts into one of several predetermined payment categories to reflect the level of arrears.
When a lender deems the statement balance of a consumer account to be uncollectible due to being in arrears 90 or more days or statuses such as repossession, foreclosure, charge-off or write-off, the consumer account is said to be in default.
The index tracks the marginal default rate as it measures the sum of first-time defaulted balances as a percentage of the total sum of balances outstanding.
The consumer credit reporting company said that the improvement can primarily be attributed to a combination of the impact of payment holidays applied by most lenders, especially on never before delinquent accounts, as well as the significant reduction in the volume of new accounts opened since the onset of the Covid-19 pandemic with the majority of lenders tightening their lending criteria and new credit exposure.
The combination of these factors resulted in an improvement in the Q3 CDI; however, Experian stressed that this is not as a result of an overall improvement in the financial performance of the average South African consumer, with levels of distress expected to continue across all segments of the market.
According to Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa, the composite index reached 4.68% in September 2020, still tracking significantly higher year-on-year (Y-o-Y) from 3.90% in September 2019.
“The deterioration is due to significant worsening across unsecured lending products in particular. We saw deterioration in personal loans from 8.84% to 10.12% and retail loans from 12.56% to 19.50% – deteriorating by 1.28% and 6.94% respectively.”
He said that secured lending also deteriorated: the home loans CDI worsened Y-o-Y from 1.51% to 1.98%, and vehicle loans from 3.54% to 4.67%. The only exception was credit cards, which saw an improvement Y-o-Y from a CDI of 6.63% in September 2019 to 5.29% in September 2020.
There was a notable impact on luxury living group, van Jaarsveldt said.
“With an average opening home loan balance in excess of R1.2 million – 54% owning at least one 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 2.37% in September 2019 to 3.35% in September 2020.
“The aspirational achievers (middle income) group was similarly exposed to secured credit resulting in a CDI deterioration from 3.32% in September 2019 to 4.13% in September 2020.”
While the money conscious majority group, which makes up the majority of the South African credit-active population (40%), also saw a significant deterioration in CDI in September 2020, the stable spenders group, saw a meaningful improvement in CDI.
Van Jaarsveldt said that the main reason why stable spenders were least impacted is likely to be that access to retail stores and thus use of credit facilities remained limited due to the stricter Covid-19 lockdown rules and the tightening of lender credit criteria, which reduced access to new credit.
What remains a concern is the impact the Covid-19 pandemic has had on the laboured living segment, said Experian.
Whilst access to new credit has reduced due to lending criteria tightening, first time default rates continue to increase indicating that those whom still have access to credit facilities continue to struggle with repayments as the impact of Covid-19 continues to put pressure on this segment.