Credit? No thanks, say consumers

Credit providers have continued to adjust their risk appetite and were cautious to approve new credit, while non-payment continued to rise, although it was less pronounced for credit cards.

These are the findings of TransUnion’s Q3 2020 South Africa Industry Insights Report, not only reflecting the ongoing impact of Covid-19 on the consumer credit market, but also the difficult decisions some consumers had to make to balance their household finances.

This data primarily relates to a time of less stringent Covid-19 measures, but application volumes, measured by enquiries, continued to decline as consumer confidence remained low coupled with increased unemployment and high levels of financial hardship.

Enquiry volumes for the third quarter fell by double digits year-on-year, with the decline most pronounced for credit cards, which were down by 49% and non-bank personal loans, down by 29%.

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New accounts also fell by double digits, while the decline in volume was most pronounced for clothing accounts (down by 69.4%) and least pronounced for credit cards, which were down by 23.1% in the second quarter. Accounts which were three or more payments in arrears, increased across all major consumer credit categories.

“Due to the prolonged nature of the pandemic, it is clear that the economic impact has been significant and sustained. Consumer confidence and lender risk appetites have been severely impacted and the latest results show the changing dynamics of both the demand and supply of credit,” said Carmen Williams, director of research and consulting for TransUnion South Africa.

Although credit demand had fallen, figures show potential supply was still available in the market. The latest statistics from the South African Reserve Bank showed that money supply growth rates have increased year-on-year and were greater than at the same time a year ago. According to TransUnion, this suggested that at least some of the fall in new accounts was due to reduced lender appetite rather than liquidity.

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Physical access is another important factor influencing new accounts. Credit categories, such as personal loans, largely depend on people coming through the door. While selected bank branches remained open during level five and four, foot traffic was limited as fewer consumers ventured out. The same is also true for non-bank personal loans and clothing accounts as stores were closed.

Arrears are up

Although arrears payments increased, it was least pronounced for credit cards.

The overall rise in arrears and the sustained impact of the pandemic on household finances continued. According to the latest TransUnion Financial Hardship Survey in South Africa, almost four in five (79%) South African consumers reported that their household income was negatively impacted by Covid-19. The survey also showed that 85% were concerned about their ability to pay bills and loans, with 29% expecting to run into a shortfall within one month.

“The Covid-19 pandemic has led to a number of fundamental shifts in the South Africa consumer credit market. It has exposed the need for lenders to enhance digital channels and re-engineer customer journeys – both for general account servicing and applications.

“It has also emphasised the importance of using trended data and advanced analytics to anticipate when a customer is going to face a difficulty in meeting payment obligations. By taking action early, lenders can give consumers the support they need whilst also effectively managing the risk in their portfolio,” Williams said.

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