South Africans are taking out credit at an increased rate, with the number of new accounts (originations) soaring in some categories. Younger people feature heavily in the uptake of new accounts. However, the rise is off a low base, after last year’s lockdowns dampened credit activity, with the credit market overall still not back to pre-pandemic levels.
These are the findings of TransUnion’s third-quarter 2021 South Africa Industry Insights Report, which also shows that delinquencies (consumers defaulting on their debt repayments) worsened across all major unsecured lending categories as the pandemic continues to put household finances under strain.
Originations increased substantially across all the major lending categories, except for credit cards. The originations data (for the second quarter 2021, due to a reporting lag) reflects the difference from conditions a year ago, when the onset of the Covid-19 pandemic and ensuing lockdown drove consumers and lenders to take a cautious approach to credit.
Home loans recorded the largest percentage increase in originations in the latest data, up 149.6% year-on-year (YoY). This is as much a function of a weak corresponding quarter in 2020 as it is of increased activity in the market, the TransUnion report says. In recent quarters, there has been a trend of consumers whose income has been unaffected or even increased during the pandemic entering the housing market as affordability has increased; this trend has continued in the current quarter.
With the auto market also seeing a recovery, especially for newer used models, vehicle finance also recorded strong originations growth, up 95.8% YoY.
Again, because of a comparison with significantly subdued activity the year before, non-bank (up 83.3%) and bank personal loans (up 79.6%) also recorded strong growth.
Although credit card originations fell (-23.5% YoY to the end of the second quarter), outstanding credit card balances continued to grow (up 14.4% YoY to the end of the third quarter).
While originations increased in most categories, the consumer credit market in South Africa is still below pre-pandemic levels, TransUnion notes. This is particularly true in the unsecured lending space (credit cards and personal loans), where the origination volumes are between 10-41% lower than their second-quarter 2019 levels. Recovery has been more pronounced in secured lending (less than 10% below 2019 levels for home and vehicle finance loans), partly due to the risk profile of consumers taking on new credit, as super-prime borrowers have taken advantage of the low interest rates.
Lee Naik, chief executive of TransUnion Africa, says: “The volatility in the consumer credit market created by Covid-19 persists, and with low vaccine take-up and a new variant in the population, this uneven recovery is likely to continue. There are some positive indicators, especially when looking at originations, but the return to a truly growing, efficiently functioning credit market will be difficult to navigate for consumers and lenders alike.”
Younger consumers driving originations growth
A closer look at origination trends reveals the shifting generational dynamics of the market. Younger consumers accounted for much of the growth in several key categories. When looking at non-bank unsecured personal loans, millennials (born 1980-1994) accounted for 41% of total originations volume, an increase of 100.6% YoY. A similar trend can be observed in the secured category of home loans, where millennials accounted for more than half (52%) of all originations in the 12 months to the end of the second quarter..
Naik says: “Although an increase in lending to younger generations should be anticipated over time as their income and credit needs grow, what is so significant about this trend currently is that it starts to reverse what we saw earlier in the pandemic, when younger generations were the first to withdraw from the market. In most categories, lending to younger generations still isn’t back to pre-pandemic levels – but this latest round of figures shows significant momentum in closing the gap.”
The delinquency picture in the South Africa consumer credit market remains volatile and has been erratic at best through the pandemic, TransUnion says. Most recently, macroeconomic drivers as well as social events—such as the civil unrest seen in July—have all had a bearing on consumer incomes and their ability to repay credit. In the third quarter, the primary unsecured credit categories of non-bank and bank personal loans and credit cards recorded an increase in delinquencies of 5.5, 5.2 and 1.2 percentage points respectively.
The TransUnion Consumer Pulse Study conducted in the third quarter echoed these figures, revealing that almost half (47%) of all South African consumers surveyed said they expected to be unable to pay any of their current bills and loans in full.
Naik says: “It is clear many South Africans are continuing to experience financial hardship because of the pandemic and mounting inflationary pressures. As a result, it is proving difficult for lenders to chart a path to recovery. The summer holiday season is always a time of increased consumer spending, and making sure credit is advanced responsibly over this period is paramount. Credit can act as a catalyst for growth when granted and utilised in a sustainable manner – and the next few quarters will be critical in determining the future direction of our economic recovery.”