Borrowing levels rise as consumers use credit for household expenses

As consumer demand for credit remains high, delinquencies for most credit products have increased in the past year, consumer credit reporting agency TransUnion said.

It said this finding was contained in its South Africa Industry Insights Report for the first quarter of 2019.

Delinquency is when a borrower is late or overdue with a payment on the credit products they have.

The report said delinquencies had risen for most credit products over the past year, as volatile economic conditions and continued weak household income growth appeared to be putting a strain on household finances.

TransUnion said the serious delinquency rate for bank personal loans increased by 310 basis points over the past year to 24.8% in the first quarter of 2019.

“Of particular concern is the continued increase in delinquencies for secured products, including home loans and vehicle finance.

“This is the third consecutive quarter that home loan delinquencies have increased, up 60 basis points (bps) year-on-year to 4% in Q1 (quarter one) 2019, while vehicle finance delinquency rates also continue to climb, up 70bps to 5.2%.”

TransUnion said delinquency rates for secured products tended to be far lower than those of unsecured products, such as personal loans and credit cards.

“But the steady rise in delinquencies for secured products over the past year indicates that even consumers in the lower-risk credit tiers are not immune to the current economic challenges.”

The report revealed that there was an increased level of borrowing, with outstanding balances increasing across all major credit categories when compared with the same time a year ago.

It said this increase in borrowing levels was likely driven, in part, by the current challenging economic conditions and the need for consumers to use credit as a means to help finance day-to-day expenses, as well as larger-ticket purchases.

The report said unsecured credit products, including credit cards and personal loans, which were typically used to fund household expenses and smaller-ticket purchases, saw significant year-on-year growth in outstanding balances in the first quarter of 2019.

However, it said that at the same time, growth for secured credit products to finance home and vehicle purchases saw much more muted growth.

It said these softer growth numbers for products may be an indication that consumers were deferring large-ticket purchases, like homes and new vehicles, in the face of economic uncertainty.

“Consumers and lenders alike are wrestling with the continued volatile economic conditions,” said Carmen Williams, director of research and consulting for TransUnion South Africa.

Williams said TransUnion observed that in the first quarter of the year, there was a significant increase in the level of borrowing on unsecured lending products.

“We expect that, in part, this increase is due to consumers using credit to help make ends meet. In these difficult economic times, credit can be a critical lifeline for consumers who may be struggling with their expenses.”

Williams said it was important for lenders to continue to make credit available to consumers who may need it.

She said lenders must also make prudent lending decisions and manage the risks of their own credit portfolios.

“This balance is both more difficult and more necessary in light of the current challenges facing the South African economy.”