South African consumers’ credit appetite continued to grow despite the sustained high interest rate environment.

This is according to TransUnion’s South Africa Industry Insights Report for the first quarter released on Tuesday.

TransUnion CEO Lee Naik said South African consumers remained resilient through the first quarter of this year, keeping up with their payments and leveraging their access to credit to maintain liquidity.

“Lenders seeking to maximise opportunity in the current economic environment will win the loyalty of resilient consumers by offering agile financial solutions that provide flexibility for their consumption needs,” Naik said.

TransUnion said this was as consumer confidence improved slightly during this quarter, along with lower inflation metrics in January and March.

Originations, which are a measure of new accounts opened, saw the strongest quarter year-over-year growth in personal loans, up by 20%.

This was the third consecutive quarter in which personal loans growth outpaced other consumer credit products.

Over the same period, retail instalment loan originations increased by 10%, and the average new loan amount increased by 14.5%.

The Insights Report said originations growth across consumption-led products was largely driven by Gen Z (born 1995–2010), especially as this youngest generation took a bigger role in contributing to the labour market and credit economy.

While clothing account originations volumes increased by 3.1% year-on-year, the average new clothing account limit increased by 27.8%, leading to outstanding balances growth of 10.6%.

The significant increase in account limits was said to indicate that lenders were responding to consumers’ demand for more liquidity as they seek access to credit to fund their needs for the myriad items available via clothing accounts, including mobile devices and electronics, appliances and homeware.

TransUnion said growth observed in the clothing account market had been amplified by consumers facing higher living costs, which were increasing at a faster pace than their income, especially as inflation remained on the higher end of the Reserve Bank’s targeted range of 3% to 6%.

While new loan amounts had shrunk, total outstanding home loan balances increased by 7.6%, implying that existing home loan borrowers were leveraging their home equity for liquidity.

TransUnion said consumers were likely drawing on their existing home loans due to more favourable interest rates relative to the cost of new credit issuance across consumption-led products.

Simultaneously, it said home loan delinquencies deteriorated by 140 basis points year-on-year, alerting lenders to adopt a more active approach to anticipating and managing delinquencies that may arise from consumers who may be experiencing a payment shock due to high interest rates.

TransUnion said South Africans continued to demonstrate resiliency despite the uptick in home loan delinquencies, and a more muted uptick in vehicle finance delinquencies as their credit performance for consumption-driven products improved during the first quarter, with delinquency rates improving across all unsecured credit products.

Lenders appeared to be prioritising lower-risk consumers for personal loans, with the number of loans granted to consumers in the prime and near prime risk tiers having increased by 5.5%, continuing a trend for the third consecutive quarter.

Credit cards continue to attract the digital natives, namely Gen Z consumers, seeking convenience and liquidity, who are prioritising their payments on their cards in order to maintain credit access, contributing to improved portfolio performance.

Naik said lenders must navigate a delicate balance between finding opportunities for growth and extending financial inclusion to consumers and managing the emerging risks in the current economic climate.

“Many consumers also face the challenge of leveraging the credit available to them so that they can meet their consumption needs and improve their living standards, while managing their commitments responsibly,” Naik said.

“To drive sustainable and smart growth, lenders need to leverage enhanced credit and alternative data to find and fund good consumers, predict delinquencies early and build consumer trust.”

PERSONAL FINANCE

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