The average personal loan amount in South Africa right now – and how much people owe on their clothing accounts

New data from TransUnion shows the average loan amount in South Africa – how much money people are borrowing from various banks for their own personal use during the current Covid-19 pandemic.

The findings are contained in the credit reporting agency’s latest South African Industry Insights Report (IIR) for Q1 2021.

According to TransUnion, bank personal loan originations continue to decline; however, balances grew significantly, primarily driven by an increase in both new loan amounts and the average balance per account.

The pace of origination growth recovery for bank personal loans remains slow since the onset of the pandemic, it said. Origination volumes have remained more than a third below the previous year for the last three quarters, dropping by 34% YoY in Q4 2020.

“Average origination amount increased substantially by 22.1% YoY indicating that bank personal loan lenders continue to approach the market with caution and are granting new credit to lower risk borrowers. As such, the pace of balance growth has accelerated significantly over the last quarter,” the group said.

Average balances increased by 20.3% and total credit limits increased substantially by 16.7% pushing total outstanding balances to increase by 12.7% YoY.

In difficult economic times, consumers often use personal loans as a source of liquidity to help pay other bills and fund day-to-day expenses, TransUnion said.

Serious delinquency rates, it said, declined marginally for bank personal loans YoY in Q1 2021, marking the fourth consecutive quarter of deterioration. The continued deterioration in delinquencies is reflective of the impact of the pandemic and, more recently, the end of deferral programs for many borrowers, TransUnion said.

Personal loan—non-bank

Origination growth shows signs of recovery as lenders become more willing to extend credit to new borrowers, TransUnion said. Delinquencies deteriorated drastically for the third consecutive quarter as non-bank personal loan borrowers continue to experience financial hardship as a result of the pandemic.

While non-bank personal loan originations were still down significantly YoY (-17.9%), the pace of decline was at a lower rate compared to prior quarters (-51.1% YoY in Q2 2020 and -24.0% in Q3 2020).

“Non-bank lenders appear to be more open to granting new credit than their bank counterparts as a result of higher risk appetite,” the group said.

“Personal loans in general, are considered to be consumption credit products and since no future utility exists on these products, delinquency rates tend to be higher.

“While both bank and non-bank personal loans recorded an increase in delinquencies, it was far more pronounced for non-bank unsecured personal loans. This trend pre-dates Covid-19, but has been amplified by the impact of the pandemic.”

The increase in delinquency rates for non-bank personal loans is to be expected, it noted, given the typical risk profile of customers served by this group. Often, they are at higher risk and thus more susceptible to income shocks.

Non-bank lenders have very different business and risk models compared to more traditional banks, and their loan pricing and risk management practices reflect this. “It is however important that these trends to carefully monitored and supplemented with proactive mitigating strategies,” TransUnion said.

Clothing account data

According to TransUnion, clothing account borrowers are deleveraging amid continued financial strain. Lenders remain cautious in extending new credit in the midst of strained consumer finances and persistent rising delinquency trends.

The total number of clothing accounts has dropped by 10.7% YoY in Q1 2021 marking the third consecutive month that accounts decreased.

“Clothing account borrowers appear to be deleveraging as balances continue to fall with Q1 2021 being the fourth consecutive quarter as balance decrease – down by 9.9% YoY.

“Consumer and lender appetite for new credit remained subdued, with originations—a measure of new accounts opened that is a function of both supply and demand—continuing to fall,” TransUnion said.  Q1 2019 was the last quarter to show positive origination growth.

“This cautious approach is likely driven by the significant increase in the percentage of seriously delinquent accounts which increased by 370 bp from 30.9% in Q1 2020 to 34.5% in Q1 2021,” the credit agency said.

This deteriorating delinquency trend has persisted since early 2019 and its magnitude has been amplified since Q2 2020 when the impact of the pandemic was most felt. “This indicates that clothing account borrowers are taking substantial financial strain and that lenders require a pre-emptive analytical approach in identifying and assisting their customers,” it said.

Read: Business Talk – In conversation with TransUnion’s Dries Zietsman

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The average personal loan amount in South Africa right now – and how much people owe on their clothing accounts