SA consumers' credit health improves despite uncertainties - index

Cape Town - The credit health of South African consumers continues to improve despite major political uncertainty in SA.

This is according to TransUnion Africa's latest SA Consumer Credit Index (CCI), covering the second quarter of 2017. In the second quarter the CCI increased and continued to indicate marginally improving consumer credit health.

According to the CCI report, positive trends may be emerging, but not strongly enough yet to consider them robust or ubiquitous. Taking into account the numerous consumer risks and pressures, the second quarter report reflects that the index level should be interpreted with cautious optimism, while being mindful that many households still experience difficulty in coping with debt loads.

The CCI is regarded by TransUnion as an indicator of macroeconomic events and growth cycles for sectors affected by consumer finances and credit behaviour. It measures consumer credit health where 50.0 is the break-even level of improvement and deterioration.

Scores lower than 50 reflect worsening credit health, characterised by an increase of new accounts in default (3 months in arrears) as well as distressed borrowing (rising utilisation of store cards and credit cards).

South Africa fell into recession in the first quarter of 2017 after two consecutive quarters of declining gross domestic product (GDP). However, recent marginal improvements in retail sales indicate that economic conditions may have subsequently improved, according to the CCI report.

The CCI climbed to 53.8 in the second quarter from 50.8 in the first quarter and 49.2 a year earlier. This is due to slight improvements in some credit indicators and in household debt ratios and cash flows.

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Inflation

Softening inflationary pressures, a firmer currency and the drought relief especially on maize crops have all eased pressure on consumers.
However, low economic growth, high unemployment, low wage growth and uncertainty in a volatile global economy all pose significant pressure and risk for consumers, according to the report.

“TransUnion payment profile data show that generally, high indebtedness and weak economic growth remain challenges for households, emphasising the importance of cautious, diligent lending,” said Lee Naik, CEO of TransUnion SA.

“Also, the report notes that declines in the rate of CPI inflation led to the SA Reserve Bank (SARB) lowering the repo rate from 7% to 6.75% in the third quarter of 2017 - the first reduction in the repo rate in half a decade. This will not have a significant impact on consumers’ wallets, but they may benefit from further rate cuts later in the year as many economists are predicting.”

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Increased delinquencies

TransUnion payment profile data has also shown an increase in home loan and auto loan delinquencies. Even though inflationary pressure has eased, recovering from large repayment defaults such as home loans and auto loans is more difficult and improvements in these products may take longer for consumers to recover, the CCI report explains.

“Our advice to consumers is that, if you have experienced unexpected expenses and are struggling to meet your debt repayment obligations, speak to your lending institution and ask for a holiday payment or to restructure your debt,” suggested Naik.

“Lending institutions are more likely to help and make alternative arrangements.”

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