Consumer Credit Reporting Agency TransUnion’s latest industry reports indicate that the market remains in a mixed recovery growth phase with continued economic pressures that could hamper the pace of recovery in South Africa.
The country’s economy faces increasing risks of stagflation and real GDP forecasts have been revised to 1.5% for the year 2022 from 1.9%. Domestic inflation continues to climb, ending the first quarter at 5.9%, which is in the upper range of the South African Reserve Bank’s target range of 3-6%.
The conflict in Eastern Europe will have a negative impact on South Africa’s trade balances in the coming months, with high energy prices further aggravating domestic import costs. However, high prices for metals and precious metals can help offset these costs from increased value earned through exports, TransUnion noted.
“Consumer and lender appetite for new credit appears to have aligned over the past quarter for unsecured lending, with the exception of retail installments, as all other products saw an increase in volume. ‘origin,’ he said.
Home loan originations were relatively stable in the fourth quarter of 2021, and vehicle financing originations were lower than the prior year, primarily due to the new vehicle supply shock and high costs associated with used vehicles of quality that discourage demand. Overall, the number of consumers participating in the credit market remained relatively stable, up 0.3% from a year ago.
Average secured credit facility balances declined due to several factors, increased issuance of lower value homes and potential increase in prepayments by borrowers in anticipation of rising interest rates drove down average home loan balances.
Credit card summary
Credit card originations grew for the second straight quarter, TransUnion said.
“Card creations remain significantly below pre-pandemic levels despite the resurgence of new business volume. makes the fifth consecutive quarter of declining account volumes.
The average balance per account increased 3.6% year-on-year to R21,400with the current average balance per account being 21.9% higher than Q1 2019 (pre-pandemic) levels, indicating continued leverage behavior by existing cardholders.
Credit card creations rose 27.6% year-on-year to R131,000. Credit card issuance has now increased for the second consecutive quarter, with issuance volume in the fourth quarter of 2021 improving 8% from the prior quarter, TransUnion said.
Growth in origination was seen across all risk levels, but primarily driven by risk levels below primary risk, which accounted for over 68% of origination as of December 31, 2021 (up 4.5 % over one year).
Millennials (born between 1980 and 1994) and Gen Z (born between 1995 and 2010) contributed 63.6% of all creations from an age distribution perspective.
Average new credit lines were down 3.6% year-on-year due to increased origination volume from subprime borrowers who receive lower credit limits, the credit expert said.
Despite growth in new business through originations, total accounts decreased 7.7% year-over-year, outstanding balances (down 4.4%) and total lines of credit (down 14.0%). .1%) also decreased.
The decline in account volume was recorded across the risk spectrum, but not evenly distributed, with Prime accounts leading the way with a 12.2% year-over-year decline, followed by the quasi-prime (down 11.9%) and prime plus (down 7.0%), TransUnion said.
He said serious delinquencies in credit card accounts increased to 13.8% (up 170 basis points). Rising consumer inflation (5.9%) and interest rates (repo rate up 25 bps) will continue to put pressure on borrowers’ debt levels and hamper their ability to to service their debt in the coming months.
Retail bank lending improved for the third consecutive quarter, driven mainly by younger borrowers, but remains well below pre-pandemic levels. For the fourth quarter, personal loan account volumes saw double-digit reductions from a year-on-year basis, TransUnion said.
Bank personal loan originations increased 8.5% year-on-year to just under 1 million in Q4 2021. At current levels, origination volumes remain 28.5% below pre-existing levels. the pandemic.
Growth in origination was mainly driven by the Subprime segment (+9.4% in December 2021), which represents 63% of total origination volume.
From an age breakdown perspective, contributions to origination volumes were primarily driven by Millennials (up 9%), accounting for 52% of total origination volume, and Gen Z borrowers ( up 29.2%), accounting for 11% of total origination volume and crossing the one hundred thousand mark for the first time.
The average size of new loans increased by 6.1% year over year, thanks to the main and top risk levels.
The average new loan size of R32,600 is the highest average amount since the second quarter of 2020 (R33,100), indicating that lenders are willing to extend credit to borrowers, but remain cautious in extending amounts much larger loans to low-risk borrowers to handle the spike in non-primary origins.
Outstanding balances fell 10%, due to the continued decline in total accounts outpacing growth in new business, TransUnion said. Average balances remained relatively stable for the period. Sub-premiums represented 60.5% of active account balances at the end of the first quarter of 2022, down 1.1% year-over-year.
Serious delinquencies in bank personal loan accounts rose 220 basis points year-over-year to 32.3%, driven primarily by millennial subprime consumers, who accounted for 52% of total accounts in serious outstanding payments at the end of the first quarter of 2022.
Deteriorating macroeconomic conditions coupled with the share of active account balances and weighted origination to non-privileged accounts, pressure on delinquency performance may continue in the coming months.
Read: Here’s how much credit-hungry South African consumers owe on their homes and cars