Consumer, lender appetite for new credit ‘subdued’
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THE UNCERTAINTY and financial hardship caused by Covid-19 had impacted the consumer credit market as consumer and lender appetite for new credit remained subdued, according to TransUnion’s South Africa Industry Insights Report for the first quarter.
Carmen Williams, a director of research and consulting for TransUnion South Africa, said yesterday that the impact of Covid-19 on consumer finances remained the primary driver of credit-market trends.
“Lenders continue to focus on managing risk within existing customer portfolios rather than attracting and bringing on new borrowers, as they implement tighter risk management policies. Consumers are very much polarised, with those experiencing financial hardship relying on existing sources of credit to help them through these difficult times. On the other hand, those who have maintained or improved their income still have significant purchasing power and capacity to borrow to finance home purchases,” said Williams.
According to the report released yesterday, the measure of new accounts opened was a function of both supply and demand continuing to fall across all major consumer credit categories. Overall, the number of consumers participating in the credit market had shrunk by 3 percent over the past year.
On the other hand, outstanding balances had increased across all consumer credit categories, indicating that lenders were focused on extending credit to existing customers rather than onboarding new borrowers.
However, the report said that when looking at the drivers of change in balance growth, there was a continued divergence between consumers who had been financially impacted by the pandemic and those who were not. There were also a number of emerging trends between generations and lender types when viewing the performance of unsecured lending products (credit cards and unsecured personal loans).
In the unsecured lending space, balance growth reflected the liquidity provided by these products, and suggested that financially impacted consumers were using these much-needed sources to help balance household finances.
In the home loan market, increased balances were reflective of housing supply slowing while demand was still increasing. Consumers who had managed to maintain or even improve their income during the pandemic had driven demand and were increasingly prevalent in the market. Supply had generally fallen, as consumers continued to work from home and construction of new homes had declined. This supply/demand mismatch had caused a significant rebound in house prices, causing the average new loan amount to increase 44 percent year-on-year in the first quarter of this year.
Delinquencies continued to climb for most of the major consumer credit categories, with the exception of vehicle finance loans, which showed a small improvement. As in previous quarters, the increase in missed payments had also contributed to the growth in outstanding balances across most products.
Williams said the increase in delinquency rates for non-bank lenders was to be expected, given the typical risk profile of customers served by this group.
“Often, they are higher risk and thus more susceptible to income shocks. Non-bank lenders have very different business and risk models compared to more traditional banks, and their loan pricing and risk management practices reflect this.”
Across lending categories, delinquency performance was expected to remain under pressure in the coming months. The latest TransUnion Consumer Pulse Study showed that 62 percent of consumers were still being impacted financially as a result of the pandemic, and 87 percent of those were concerned about paying their bills over the next three months.
Unsecured lending categories topped the poll of those products consumers were most worried about paying, as mashonisa loans were at 46 percent, unsecured personal loans at 44 percent retail store accounts at 39 percent, and credit cards were at 38 percent.