Consumer credit health improves

Johannesburg - The Consumer Credit Index for the second quarter of this year, at 54.4 points, was the same as for the first quarter, indicating a marginal improvement in consumer credit health for the first half of the year compared with 2014.

Credit bureau Transunion also said on Thursday that new account defaults and distressed borrowing were slowing, but consumers were likely to remain under pressure for the remainder of the year.

The Consumer Credit Index measures consumers’ ability to service their debt. A reading above 50 represents an improvement; below this level is a deterioration. The rate of new loan defaults or accounts that were three or more months in arrears fell by 8,3 percent compared with the second quarter of 2014, after declining 8,5 percent in the first quarter.

“The improvement can be attributed in large part to more conservative lending from credit providers. We have seen a drop in the number of credit applications and an increase in the rate of declined applications, and these more prudent lending requirements by providers are paying off,” says TransUnion’s Owen Sorour. He added, however, that the outlook for consumers was not optimistic, noting that exchange rate volatility had led to price increases while recent interest rate hikes would add pressure to consumer cashflows.

The index found that the South African consumers use 50 percent of their available credit limit on revolving credit (credit cards and store cards), up from 40 percent in 2007, the year the National Credit Act kicked in. TransUnion says its data shows that revolving credit utilisation fell by 0.3% year-on-year in the second quarter.

Growth in household cashflow slowed from 2,6 percent year-on-year in the first quarter to 1,6 percent year-on-year in the second quarter. This was attributed to a range of factors including price increases on non-discretionary items such as food, accommodation and petrol as well as inflation as a result of rand volatility, slow GDP growth, lower salary increases and high unemployment.

The index showed that debt servicing costs remained stable in the second quarter, but they are likely to rise in the months ahead as the most recent rate hike was at the end of the quarter.

TransUnion says the biggest risk to consumers was a weakening rand,which causes inflation and poses a risk to interest rates.

ANA