South Africans struggle to pay off their credit cards – here’s how much they owe

Consumer credit reporting agency TransUnion released findings from its Q1 2021 South Africa Industry Insights report, showing how uncertainty and continued financial hardship caused by Covid-19 impacted the credit market for consumption.

Consumer and lender appetite for new credit remained low over the past quarter, with build-ups – a measure of new accounts opened that is a function of both supply and demand – continuing to decline across the board. the main categories of consumer credit, he said.

Overall, the number of consumers participating in the credit market has decreased by 3% over the past year.

In contrast, overdue balances have increased across all categories of consumer credit, indicating that lenders are focusing on extending credit to existing customers rather than onboarding new borrowers, TransUnion said.

However, when looking at the drivers of change in balance growth, the data indicates a continuing divergence between consumers who have been financially impacted by the pandemic and those who have not.

In the space of unsecured loans, the growth in the balance reflects the liquidity provided by these products and suggests that financially affected consumers are using these much-needed sources to help balance household finances.

“This supply / demand mismatch caused a significant rebound in house prices and led to an increase in the average amount of new loans by 44% year-on-year in the first quarter of 2021, the consumer credit expert said.

“Defaults continued to climb for most major categories of consumer credit, with the exception of auto finance loans, which showed a slight improvement. As in previous quarters, the increase in missed payments also contributed to the growth in outstanding balances for most products. “

Carmen Williams, Director of Research and Advisory for TransUnion South Africa, said: “The impact of Covid-19 on consumer finances remains the main driver of credit market trends. Lenders continue to focus on managing risk within existing client portfolios rather than attracting and attracting new borrowers as they implement more stringent risk management policies.

“Consumers are very polarized, with those in financial difficulty relying on existing sources of credit to help them through these difficult times. On the other hand, those who have maintained or improved their income still have significant purchasing power and borrowing capacity to finance the purchase of a home.

Growth in credit card balances

Credit card balances, which are a function of several factors including reliance on credit for liquidity, accumulation of defaults and even purchasing habits, continued to increase year-on-year in the first quarter of 2021 (up 7.7%).

However, the increases were not evenly distributed and a clear generational gap emerged. Younger consumers have increased their credit card balances more than older generations, TransUnion said.

Delinquency increases the most for non-bank lenders

Credit performance is a lagging indicator, with consumers typically depleting other sources of funds before defaulting on a loan. In the last quarter, the deterioration continued in most major categories of consumer loans, with the exception of auto finance loans.

The continued deterioration of delinquencies reflects the impact of the pandemic and, more recently, the end of deferral programs for many borrowers.

The latest analysis from TransUnion shows the difference in delinquency performance between bank and non-bank lenders in the personal loan category.

Both saw an increase in delinquencies, but it was much more pronounced for unsecured personal non-bank lenders. This trend predates Covid-19 but has been amplified by the impact of the pandemic.

Despite declining demand and supply dynamics, credit card balances have increased, with lenders focusing on increasing limits for existing cardholders.

The credit card is the only credit product to show high levels of continuing decline in origination since the start of the pandemic (down 23% yoy in Q2 2020, 63.2% yoy in the third quarter of 2020 and 48.6% year-on-year in the fourth quarter of 2020).

This is largely due to the fact that lenders are implementing stricter credit granting policies amid economic uncertainty. Lenders remain focused on extending credit to existing customers rather than onboarding new borrowers, TransUnion said.

Average balances increased 12.8% and total credit limits increased significantly by 21.7% while new loan amounts increased only 4.2%.

Credit card balances, which are a function of several factors including reliance on credit for liquidity, accumulation of defaults and even purchasing habits, continued to increase year-on-year in the first quarter of 2021 (up 7.7%).

However, the increases were not evenly distributed and a clear generational gap emerged. Younger consumers have increased their credit card balances more than older generations.

Credit card delinquencies deteriorated 20 basis points to 12.0%. Typically, delinquency rates have remained stable at around 12% in recent quarters after peaking at 12.8% in the second quarter of 2020 during the pandemic containment period, TransUnion said.

This stability indicates that consumers continue to protect their continued access to this type of product, as credit cards provide a much needed source of cash for cash-strapped consumers, he said.

Read: Struggling middle class South Africans spend more than half of their wages on debt