Consumer credit reporting agency TransUnion has published the findings of its Q3 2020 South Africa Industry Insights Report, showing the ongoing impact of Covid-19 on the consumer credit market.

Although the latest data primarily relates to a period when coronavirus measures were less stringent than during the initial lockdowns seen earlier in the year, there was still a fall in consumer demand, TransUnion said.

In Q3 2020, year-on-year (YoY) inquiry volumes declined by double digits across all the major consumer lending categories. The decline was most pronounced for credit cards, and non-bank personal loans.

Originations also slipped by double digits YoY for all major consumer credit categories. In the most recent period (Q2 2020 for originations), the decline in volume was most pronounced for clothing accounts (down 69.4%) and least pronounced for credit cards (down 23.1%), the credit company said.

Serious-level delinquencies – accounts three or more payments past due – increased across all major consumer credit categories as consumers continued to experience financial stress.

Delinquencies continued to rise, but were less pronounced for credit cards, the data showed.

As with originations, credit cards somewhat resisted the rising delinquency trend. Although delinquencies increased YoY in Q3 2020 across all major consumer credit categories, it was least pronounced for credit cards, which recorded a 40 basis points (bps) increase in serious delinquencies.

This compares to more than 600 bps for some other categories, with non-bank personal loans up by 620 bps and clothing up by 630 bps.

It is possible consumers are prioritising credit card payments to preserve both the utility and liquidity they provide in Covid-19 times, said TransUnion.

Credit Card Summary

The credit card market has been challenged by a persistent decline in demand, negative balance growth and increased delinquencies.

The annual rate of balance growth has declined when compared to the same time last year.

Credit card balances were down by 1.9% YoY likely driven in part by the continued slow- down in originations which has been evident since Q3 2019. Originations for the latest quarter (Q2 2020 due to reporting lag) dropped by 23.1% YoY largely due to lockdown restrictions imposed during the quarter.

While the decline in credit card originations is substantial, this drop is much smaller compared to other product categories as consumers relied on these as a payment and purchase mechanism of choice to complete online transactions.

Also, consumers can more easily apply and be approved for a credit card online without going to a branch, the credit union said.

Average credit lines continued to increase in Q3 2020, by 9.6% YoY; as did average new account credit line (22.9% YoY).

The increase in credit lines is stimulated by two factors: 1) the need for consumers to increase credit usage as a means to finance day-to-day expenses as the pandemic continues to take its toll on personal finances and 2) the impact of payment financial accommodations such as deferrals and payment holidays which has contributed to the increase in balances, with interest continuing to accrue as repayments have been put on hold.

The YoY increase for account-level credit card delinquencies is the smallest compared to all other credit products, increasing by only 40bp. Considering the current deterioration in economic conditions and the dramatic extent of delinquency increases in other products, this increase is minor.

It is likely that consumers are doing everything that they can to protect their continued access to this product type as credit cards provide a much needed source of liquidity to cash-strapped consumers, TransUnion said.

Clothing Account Summary

The effects of lockdown restrictions during the quarter is evident for the clothing market as originations, enquiries and balances declined. The increase in delinquencies remain a cause for concern, the credit union said.

“Due to the resourcefulness of many consumers when they face financial distress, there tends to be a delay in the level of delinquencies coming through. Consumers tend to work through a range of options before defaulting on a loan – using savings, other formal borrowing facilities, or even borrowing from friends and family, before they will miss a payment,” said Carmen Williams, director of research and consulting for TransUnion South Africa.

“Many lenders have been proactive in offering treatments, and their continued support will hopefully reduce the severity of any impact going forward. Delinquency trends warrant continued analysis, and it will be critical to understand how consumers prioritise payments in the coming months,” said Williams.

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