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First-time credit defaults highest since December - index

Apr 09 2018 22:00
Carin Smith

Cape Town - Pressure seems to be building again on South African consumers due to the increase of the cost of living, David Coleman, chief data officer at Experian SA, told Fin24 on Monday.

He expects the impact of factors like the increased fuel levy and VAT hike will put further pressure on SA consumers.

Experian’s latest Consumer Default Index (CDI) improved to 3.28% in February 2018 from 3.40% in February 2017. However, on a monthly basis, the Experian CDI tracked higher for the second consecutive month, deteriorating since January’s 3.19% and December’s 3.15%.

The Experian CDI is measures the rolling default behaviour of SA consumers with home loan, vehicle loan, personal loan and credit card accounts. The index tracks the marginal default rate as it measures the sum of first-time defaulted balances as a percentage of the total sum of balances outstanding.

During the three-month period between December 2017 and February 2018, first-time credit defaults amounted to a total of R12.52bn. Monthly values amounted to R3.90bn in December; R4.24bn in January; and R4.38bn in February.

According to Coleman, these deteriorations may be due to high spending by consumers during the December holidays having a ripple effect on their ability to manage their debts in January and February.

Coleman said from an overall perspective, the index has decreased y/y, but if one looks at the shorter term, the trend since November 2017 has been an increase in the first-time default rate. He added that from February to June the trend is usually upwards and in the third quarter the trend usually comes down.

Vehicle finance and credit cards

From a product perspective, Coleman has noted an increase in the rate of first-time defaults in both the category of vehicle finance and the one for credit cards.

"We see a trend of credit cards being used as a mechanism to finance the lifestyle of consumers. Pressure is building on the middle class," said Coleman.

"I expect further pressure in terms of credit cards. Consumers should apply prudence regarding their discretionary spending on credit cards. Don't finance purchases that can be delayed. Have discipline about sticking to a budget and do not spend more than you can afford."

The category for families living rent-free in informal dwellings with children who rely on government grants recorded the best y/y CDI improvement - from 5.26% in February 2017 to 3.97% in February 2018.

The category for extended families consisting of members of different age, earning minimum wages and living in poor quality housing in cities recorded the worst y/y deterioration with a CDI of 3.72% in February 2018 compared to 3.09% in February 2018.

The category for large young households living in small low-value coastal township properties with high levels of unemployment were the overall worst performing segment with a recorded CDI of 7.04% in February 2018 from the 7.24% recorded in February 2017.

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experian  |  sa economy  |  money  |  debt
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