New data from consumer credit agency TransUnion shows that consumer demand for loans is growing despite the second-lowest level of consumer confidence in three decades, rising inflationary pressures and high interest rates.

TransUnion’s Q2 2022 South Africa Industry Analytics Report showed a 37.9% year-over-year increase in new credit card accounts. At the same time, delinquencies on the main consumer lending products are stabilizing, and secured lending indicators have stabilized, although there are signs of a slowdown in home buying activity, the agency notes.

The latest analysis covers a period of rising inflationary pressures, high interest rates and additional macroeconomic factors exacerbated by conflicts abroad. The report identified a number of notable trends in South Africa’s consumer lending industry relating to new business volumes, delinquencies and levels of outstanding debt.

The results come in the context of the second-lowest consumer confidence reading in three decades, second only to Q2 2020 at the peak of the pandemic’s initial outbreak. This reading suggests a correspondingly marked slowdown in consumer spending over the same months, with retail sales falling 2.5% year-on-year (y/y) in June.

First of all, consumer sentiment was affected by the highest inflation in 13 years, as well as the increase in interest rates. This was reflected in TransUnion South Africa’s second quarter consumer pulse survey released in July, in which 60% of households surveyed indicated they were focused on reducing discretionary spending.

Car loans

Vehicle finance loans increased 3.1% year-over-year to 132,000 in the first quarter of 2022. Current spending is 0.9% below pre-pandemic levels (Q1 2020). In terms of age distribution, Millennials accounted for 47% of new business, followed by Gen X at 34.2%, according to TransUnion.

Gen Z consumers are up 36% year-over-year, albeit lower. From a risk perspective, consumers with a credit score above 721 (Super Prime) drove 26% of openings, with actual volumes up 15.2% YoY. The average new loan amount increased by 10% y/y, surpassing the previous high in Q4 2021 to 362,000 rand.

The increase in new loans coincides with TransUnion’s Q1 2022 vehicle price index findings, which show a 4% increase in new car prices and a 7.9% increase in used car prices compared to Q1 2021. with a ratio of used cars sold to new cars of 2.2 to 1.

The decline in the number of accounts (down 0.3%), debt (down 1.6%) and average balances (down 1.3%) was driven by several factors, TransUnion said.

Declining new business volumes for two consecutive quarters between Q3-Q4 2021 and consumer sentiment toward faster debt repayments could contribute to the narrowing balance sheet, it said.

The serious delinquency rate at the account level of 7.0% is a 30 basis point improvement over the prior year. Delinquencies are stabilizing at current levels, potentially due to a shift in risk distribution, with higher risk sub-prime accounts – credit scores below 656 – down 1.1% year-on-year.

Housing loans

Home loan originations were up slightly from a year earlier, but home loan balances fell, TransUnion reported.

New home loans rose 1.3% year-on-year and 15.7% lower than the previous quarter to 45,000 as of Q1 2022.

Despite the increase in originations, the market is expected to slow due to rising inflation and interest rate pressures, which are discouraging consumers from making large purchases. The average new loan amount of 812,000 rand fell by 5.2%, despite ​house prices continuing to rise, suggesting that consumers are likely to buy more affordable homes.

According to the credit expert, millennial consumers are the main contributors to new business, accounting for 52% of new business.

Despite the increase in the number of accounts, both outstanding and average balances decreased compared to last year. “In terms of outstanding balance, this could be due to the lower cost of loans received in recent quarters. From an average balance perspective, this may have been due to borrowers who were able to maintain or even improve their income while paying down their home loan obligations in response to rising housing costs,” TransUnion said.

Account-level serious delinquency rates fell 10 basis points y/y to 5.1% in 2Q2022. This is the fifth consecutive quarter that rates have remained at 5.1%, indicating that severe delinquencies at the account level have stabilized at current levels, it said.

Read: New inflation data – bad news for food prices in South Africa

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