Consumer credit health worsens

Johannesburg - Consumer credit health is deteriorating this quarter when compared to the fourth quarter of last year‚ leading global credit bureau TransUnion reported on Tuesday.

The bureau’s consumer credit index (CCI) fell to 44.4 in the current quarter from 49.4 the quarter before‚ reflecting a marked escalation in consumer loan impairment rates and rising pressures on household cash flows and budgets.

The index is a unique indicator of consumer credit health based on a 100-point scale. An index above 50 indicates improving credit health‚ while a reading of below 50 shows deterioration.

Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.

The credit bureau noted that impairment records across its payment profile database had deteriorated considerably in recent months.

“The number of accounts three months in arrears is up by 10% in the last year‚ a similar increase to that experienced between 2007 and 2008‚” TransUnion CEO Geoff Miller said.

“While the actual number of impaired accounts remains some way below the distressed levels of 2009‚ it is clear that they are now rising quite quickly.”

Heavy job losses sustained in the fourth quarter of last year and January this year were identified as a possible explanation for why impairment records across the TransUnion payment profile database had deteriorated in recent months.

The economy continued to shed jobs in the final quarter of last year‚ according to official Statistics SA figures.

“The employment situation is a concern. Retrenchments are a clear and direct risk to consumer credit health‚” Miller said.

While risks to South African consumer credit health were fairly balanced in the fourth quarter of last year‚ they appeared to have tilted toward increased consumer credit risk in this quarter.

Miller noted that while the index did not yet indicate a crisis‚ the deterioration in credit health was a clear signal of rising financial stress levels and that credit providers needed to remain prudent.

Excessive borrowing and lending could “easily” begin to push more consumers into a position of budget distress‚ Miller added.

Concern was raised last year regarding the high level of growth in unsecured lending‚ with regulatory authorities saying that while they noted the concerns‚ there was no bubble in this type of lending.

The index is driven by objective market data rather than consumer surveys or questionnaire responses.

“TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key‚ publically available macroeconomic variables impacting household finances‚” Miller explained.