The rate at which people defaulted on their loans for the first time decreased in the second quarter, according to the Experian Consumer Default Index (CDI).
Although consumer debt remains at R1.9 trillion, the index improved from 4.33 points in March to 4.03 points in June. The improvement was attributed to the stringent lockdown imposed 12 months prior, resulting in significantly reduced credit extension and an improvement in the overall CDI.
Experian Africa’s chief decision officer, Jaco van Jaarsveldt, said new business volumes had decreased since the onset of the Covid 19 pandemic, reducing the population from which first-time defaults stemmed.
“While we have seen the demand for credit improve to pre-Covid levels over the past 12 months, the supply remains constrained due to the continuous conservative lending criteria imposed by most lenders,” said Van Jaarsveldt.
At 4.03 points in the second quarter this year, the year-on-year CDI was tracking lower than the all-time high of 5.68 points in the same period last year, following the level 5 lockdown that was imposed on March 27 last year.
The CDI improved year-on-year across all products, most predominantly home loans, which rose from 2.90 points to 1.83 points.
“Home loans accounted for more than 50 percent of the composite CDI, and as such was the driving force behind the improvement, supported by improvement in all the other banking and retail products,” Van Jaarsveldt said.
The CDI is designed to measure rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts.
Van Jaarsveldt said that since the onset of Covid-19, they had seen the most affluent consumers benefiting least from the improvement in the CDI.
“There was a noteworthy impact on the Luxury Living group, as they are highly exposed to secured credit, resulting in a relative CDI improvement of 22 percent, moving from 3.85 in June 2020 to 2.99 in June 2021. The Aspirational Achievers group, also highly exposed to secured credit, saw a CDI improvement from 4.95 in June 2020 to 3.68 in March 2021, which is also relatively modest.”
The Yearning Youth group, which made up about 16 percent of the South African population, saw the greatest relative CDI improvement, from 21.61 in June last year to 12.63 in June this a year (a 42 percent relative CDI change). Their exposure to secured credit was negligible, below 1 percent. However, their exposure to unsecured credit, particularly retail loans, was more substantial at 6 percent.
The significant improvement in CDI in the second quarter was said to stem from levels of credit granted in the retail industry, in particular, where many providers opted for more stringent lending criteria, along with the impact of the hard lockdown at the beginning of the pandemic.
Women constituted just more than half of the South African adult population. However, women represented just more than a third of the market when looking at the rand value of their exposure. This was attributed to, at an individual level, women typically taking on less debt than their male counterparts.
Women were particularly under-represented in secured lending products with regards to consumer numbers and market exposure. But women accounted for almost two-thirds of the market (in terms of both volume and value) with regard to retail loans.
When comparing the distribution of product holding between men and women, Experian Africa said that women made substantially more use of retail loan products than their male counterparts, with about half of the female consumers registered with credit bureaus having retail loans compared to 31 percent of males.
The value of these loans was only a fraction of bank loans, mainly secured lending such as home loans and vehicle loans. As a result, retail loans constitute only 3 percent of the total exposure of women in the South African market compared to 1 percent of men. Conversely, 46 percent of women’s exposure was in home loans, while 55 percent of men’s exposure was in home loans.
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