TransUnion released the findings of its Q3 2021 South Africa Industry Insights report, showing how much consumers owe on their credit cards as the holiday season approaches.
The consumer credit reporting agency said with unemployment still at record levels and consumer price inflation above average household income growth, the strain on South African finances persists. and is clear in the latest consumer credit data.
The report shows a number of emerging trends that highlight the differences in credit behaviors of generations of consumers as well as the divergent performance between product categories.
Although credit card issuance fell year-on-year in the last quarter (-23.5% in Q2 2021), overdue credit card balances continued to grow, up 14.4% year-on-year in the third quarter of 2021, said TransUnion.
“Throughout the pandemic, South African consumers have relied on credit cards both for the utility they provide, particularly in facilitating the growth of online transactions, and for accessing a source of credit. flexible credit to deal with household bills when finances are under pressure. “
While year-over-year creations have increased in most categories, the consumer credit market in South Africa is still below pre-pandemic levels, the credit agency said. This is especially true in the unsecured lending space (credit cards and personal loans), where origination volumes are between 10% and 41% lower than their Q2 2019 levels.
Lenders continue to impose restrictive credit lending policies due to economic uncertainty, TransUnion said.
Credit card providers always prioritize granting credit to existing customers over onboarding new customers. Average balances increased 16.8% over the period and total credit limits increased 18.9%.
The line of credit for the new account increased 11.1%.
TransUnion said bad credit card balances (up 14.4% year-on-year) are mainly due to consumers needing to supplement their income negatively affected by the pandemic to maintain cash flow and fund needs. immediate households.
With respect to unpaid balances, there is a disparity in the distribution of increases. The current trend suggests that younger generations are increasing their credit card balances faster than older generations.
The year-over-year change in the third quarter of 2021 for Millennials (born 1980 to 1994) and Gen Z (born 1995 to 1980) was 11% and 12%, respectively, compared to 9% for Gen X (1965 -1979) and only 6% for baby boomers. (born in 1946-1964). The convenience of a credit card is becoming more and more important to younger generations as they conduct more transactions online.
Serious delinquencies (more than three months of late payments) on credit card accounts increased 120bp to 13.4%, the highest level since the first quarter of 2018 (13.9%). The increase in the delinquency rate cancels the increase recorded since Q2 2020 (12.8%). Over the past four quarters, delinquency rates have hovered around 12%.
“This upward trend will likely continue into New Years with the usual spike in spending expected in the fourth quarter. Defaulting consumers will need to speed up their repayment efforts to avoid further deterioration in their credit.
“The increase in overdue and unpaid balances can be partially attributed to several factors, including unexpected purchases of consumables in July 2021 due to riots in several parts of the country, the economic impact of the pandemic and significant increases in fuel prices, ”TransUnion said.
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