Global Courant
Consumer credit reporting agency TransUnion has published its Q1 2023 South Africa Industry Insights Report, which finds that South Africans continue to be under financial pressure, leading to shifts in consumer and lender behavior.
The report shows notable increases in the number of unsecured loans, with new loan volumes up nearly 25% year-on-year across all risk categories.
However, lenders showed a cautious outlook by only marginally increasing the average credit limit on new cards despite strong demand.
“While the rate of serious delinquencies improved overall, there was an approximately 11% year-over-year increase in bills that were one month overdue. This underscores the need for lenders to ensure proactive credit management and maintain open lines of communication with customers to maintain market stability,” the report said.
In the secured loan categories (mortgages and car finance), the vehicle finance market suffered a downturn, with production volumes falling 6.8% year-on-year.
This was influenced by rising interest rates, high inflation and a weaker currency; consumers hold onto their vehicles for longer periods of time or are exploring alternatives such as renting a vehicle, TransUnion said.
It added that the decline was juxtaposed with a 6.5% year-over-year increase in the average loan amount for those consumers who did opt for vehicle finance loans because of the rising cost of owning a vehicle.
In contrast, the home loan market grew despite high interest rates and inflation.
The change can be attributed to affluent consumers buying high-end properties and the continued segregation in the country due to continued remote working conditions. However, the report noted that successive increases in repo rate showed signs of potential pressure on consumers’ repayment ability.
Vehicle Financing
The auto loan market was in turbulent waters as a drop in output was offset by
loan and balance increases
Manufacturing growth remains subdued as the global auto industry had another challenging quarter hampered by inventory shortages. Due to the shortage of vehicles and rising inflation, the prices of both new and used cars continued to rise, according to TransUnion.
The number of new car loans fell by 6.8% to R128,124 in the first quarter of 2023. At current levels, new volumes are 11.1% below pre-pandemic levels, the credit specialist said.
“Despite the drop in account volume, those consumers who did opt for car finance loans
borrowed larger amounts, with the average loan amount increasing by 6.5% over the past year
years,” the report said.
These larger loans, combined with a 50 basis point increase in the repo rate, led to a 7.4% increase in outstanding balances and a 6.7% increase in average balances year over year.
The credit expert said the average new loan amount reached a new high of R386,116 as this trend was linked to the higher cost of owning a vehicle.
While serious account-level default rates fell 190 basis points year over year, indicating
South African consumers prioritize repayment of secured loan products. Q1 2023 saw
a 650 basis point increase in first month defaults year over year.
“This alarming increase underscores the importance for lenders to manage these impairments effectively to prevent them from sliding into more serious defaults and threatening market stability,” it said.
Mortgage
The South African home loan market continued to thrive amidst economic challenges, with strong growth in volumes and balances.
New home loan volumes increased 9.1% year over year to R52,223. This growth occurred despite the high interest rate and inflationary environment, suggesting that consumers planning to buy a home were fulfilling their intent, according to TransUnion.
Average new loan amounts also saw a significant 21.5% year-on-year increase to R955,654, likely driven by more affluent consumers purchasing high-end properties.
The credit expert noted that this growth can also be attributed to continued emigration in the country as remote working conditions continue post-pandemic.
However, the combined effect of higher loan values and volumes led to a significant increase in outstanding balances to R1.1 trillion, up 5.2% year-on-year, while the 50 basis point increase in repo rates pushed average balances down by 4 increased .8% per year.
“There are signs that consumer repayment ability may be coming under pressure as bills with a single month of missed payments are up 25% year over year, and have both serious delinquencies at the account and balance levels in Q1 2023 also experienced a marginal increase, rising at 30 bps and 60 bps respectively,” it said.
This pressure is visible when looking at the impact of rate hikes since they started in November 2021.
The rate hike in May was the tenth consecutive hike, by 475 basis points since the start of the cycle, resulting in an additional redemption value for a home loan of R2 million, rising by more than R6,000 per month. This highlights the pressure on homeowners and the need for lenders to closely monitor these trends.
Read: Interest rate problems ahead
