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Johannesburg – There is a rising use of credit cards to supplement household budgets, according to Transunion CEO Geoff Miller.
"There is ample evidence to indicate that household budgets remain strained and shows that the good news seen in the credit defaults data is not fully supported by household borrowing behaviour," he said.
“Budgets clearly remain under considerable pressure and are vulnerable to higher consumer inflation and worsening employment conditions.”
Risks to consumer credit health remain due to higher interest rates and inflation, according to the latest TransUnion Consumer Credit Index (CCI) released on Tuesday.
Consumer credit health has deteriorated marginally in the first quarter of 2014, according to the latest CCI.
It marks the ninth straight quarter of deterioration.
Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.
"Two years of deteriorating credit health has placed South Africa’s consumer credit market under considerable strain, causing lenders to become more judicious in their lending practices," according to TransUnion.
It said that the trend in the CCI represented more of a stabilisation amid relatively weak consumer credit conditions rather than an outright improvement.
Loan term restructuring, slowing rates of unsecured lending and more prudent debt book management by credit providers are helping to provide stability to the market, according to Miller.
He cautioned though that it would be unwise to become too complacent.
The TransUnion payment profile database shows that the number of consumer accounts lapsing into default (accounts that are 3-months in arrears) remained stable quarter-on-quarter in the first quarter of 2014.
“While there are still millions of consumers between three to nine months in arrears, or already written off, under judgment, or in debt counselling, the current trend is welcome news after the surge in new defaults in 2012 and 2013,” said Miller.
Macroeconomic pressures
The macroeconomic pressures on households may be worsening, something that Miller said one cannot ignore in assessing market conditions for the remainder of 2014.
“The data shows that some key consumer prices are outpacing household income growth," he said.
"Credit provider and consumer behaviour may have been improving, but the reality is that living cost pressures take their toll on credit health. It’s all about more competition for a stretched wallet.”
The other risk factor that seems yet to show through negatively in the default data is the fact that the prime lending rate was increased from 8.5% to 9.0% in January 2014, causing floating rate loan repayments to adjust higher.
“While 50 basis points increase in debt servicing cost is relatively small and comes off a historically low base, higher monthly repayment costs will nonetheless impact marginal borrowers who were already struggling to make ends meet and make debt repayments”, Miller cautioned.
“It’s quite possible that the rate increase will negatively impact defaults and distressed borrowing trends in Q2 and Q3 2014. That’s why there’s a lot of caution in our optimism about recent default trends.”
- Fin24
Help us help you by taking our second annual Debt survey and you could win R3 000, or add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.
"There is ample evidence to indicate that household budgets remain strained and shows that the good news seen in the credit defaults data is not fully supported by household borrowing behaviour," he said.
“Budgets clearly remain under considerable pressure and are vulnerable to higher consumer inflation and worsening employment conditions.”
Risks to consumer credit health remain due to higher interest rates and inflation, according to the latest TransUnion Consumer Credit Index (CCI) released on Tuesday.
Consumer credit health has deteriorated marginally in the first quarter of 2014, according to the latest CCI.
It marks the ninth straight quarter of deterioration.
Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.
"Two years of deteriorating credit health has placed South Africa’s consumer credit market under considerable strain, causing lenders to become more judicious in their lending practices," according to TransUnion.
It said that the trend in the CCI represented more of a stabilisation amid relatively weak consumer credit conditions rather than an outright improvement.
Loan term restructuring, slowing rates of unsecured lending and more prudent debt book management by credit providers are helping to provide stability to the market, according to Miller.
He cautioned though that it would be unwise to become too complacent.
The TransUnion payment profile database shows that the number of consumer accounts lapsing into default (accounts that are 3-months in arrears) remained stable quarter-on-quarter in the first quarter of 2014.
“While there are still millions of consumers between three to nine months in arrears, or already written off, under judgment, or in debt counselling, the current trend is welcome news after the surge in new defaults in 2012 and 2013,” said Miller.
Macroeconomic pressures
The macroeconomic pressures on households may be worsening, something that Miller said one cannot ignore in assessing market conditions for the remainder of 2014.
“The data shows that some key consumer prices are outpacing household income growth," he said.
"Credit provider and consumer behaviour may have been improving, but the reality is that living cost pressures take their toll on credit health. It’s all about more competition for a stretched wallet.”
The other risk factor that seems yet to show through negatively in the default data is the fact that the prime lending rate was increased from 8.5% to 9.0% in January 2014, causing floating rate loan repayments to adjust higher.
“While 50 basis points increase in debt servicing cost is relatively small and comes off a historically low base, higher monthly repayment costs will nonetheless impact marginal borrowers who were already struggling to make ends meet and make debt repayments”, Miller cautioned.
“It’s quite possible that the rate increase will negatively impact defaults and distressed borrowing trends in Q2 and Q3 2014. That’s why there’s a lot of caution in our optimism about recent default trends.”
- Fin24
Help us help you by taking our second annual Debt survey and you could win R3 000, or add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.
