The new credit activity growth was led mostly by Gen Z and Millennial consumers, who together accounted for 61% of new products originated during the quarter.
The Gen Z and Millennials led the growth as credit demand and supply continued during the fourth quarter of last year, according to TransUnion’s quarter four 2023 South Africa Industry Insights Report.
The report released yesterday showed that the South African consumer credit landscape maintained its resilience during the last quarter of 2023, with a significant 11% overall growth in originations - a measure of new accounts opened-across all products.
The new credit activity growth was led mostly by Gen Z (born 1995 to 2010) and Millennial (born 1980 to 1994) consumers, who together accounted for 61% of new products originated during the quarter. Gen Z represented 15% of the country’s credit active population, having grown by 1.7% year-on-year as more consumers in that generation reached adult age and entered the credit market.
Lee Naik, the CEO of TransUnion Africa, said this shift told a rewarding story of financial inclusion, as more South Africans had access to the opportunity of investing in their own property.
“As younger consumers drive the growth in the credit economy, it is a great opportunity for lenders to serve their expanding needs and build lifetime relationships,” Naik said.
Despite continued macroeconomic uncertainty, consumer-level delinquencies, which is the percentage of credit-active consumers who were three or more months in arrears on any major lending product, improved year on year (y/y) by 90 basis points (bps) from 38.5% to 37.6% in that period.
When assessing individual products, delinquencies improved across all unsecured products. However, vehicle finance remained flat y/y and home loans were the only major credit product with deteriorating delinquencies by 140 bps.
TransUnion Africa said this deterioration in home loan delinquencies could be attributed to payment shock - a sudden change in monthly payment obligations caused by external factors caused by a rising interest rate environment and high inflation, which in turn led to a higher cost of living and debt.
Naik said many South African homeowners initially faced payment shocks when interest rates escalated in 2022 and last year, but the subsequent increase in the cost of living due to higher-than-expected inflation had put them under even more pressure.
“While most consumers do indeed have the capacity to absorb the payment shock we have seen over the current high interest rate cycle, lenders can take this opportunity to evaluate risks and opportunities for existing and prospective customers’ behaviours across the entire credit wallet, and to offer adequate response strategies for at-risk consumers,” he said.
This was said to be supported by the quarter four 2023 South Africa Consumer Pulse Report, in which nearly half (47%) of South Africans said that they had to cut down on discretionary spending, such as dining out, travel and entertainment, due to inflation and other factors. They also planned to spend less on retail shopping and big purchases.
In the fourth quarter of 2023, clothing account originations in South Africa maintained their upward trajectory, registering a 6.9% y/y increase in new accounts. This growth aligned with the broader expansion observed in the retail sector for clothing, textiles, and footwear - which rose 2.7% over the same period.
During December last year, 87.1% of new clothing accounts were opened by subprime consumers - those with the riskiest credit scores, while 12.9% were opened by consumers with better risk profiles. Account-level delinquencies across all three retail credit products improved, with retail revolving loans down by 220 bps and retail instalment loans down by 190 bps.
Naik said despite some economic challenges, the South African consumer credit landscape in the fourth quarter of last year showed positive signs of demand for credit, and showed resiliency with the majority of the consumers managing their credit better.
“This bodes well for the continued growth of the country’s credit market,” he said.
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