IIR Q4 2018 Results
- Increased loan amounts and credit lines are offsetting falling origination volumes in the key personal loan and credit card consumer lending categories as lenders shift to lower-risk borrowers
- Rising delinquencies in home loans and vehicle finance highlight areas of focus for lenders
The South African economy has emerged from the technical recession of the first two quarters of 2018, with full-year GDP growth ahead of expectations at 0.8%. The lingering effects of this recession may be seen in the mixed delinquency trends across different lending products. Lenders appear to be scaling back originations in several sectors, particularly in unsecured lending in response to the recessionary environment. A renewed focus on lower-risk originations is apparent as lenders attempt to address concerns about the impact on portfolio performance
Overall, growth in the consumer credit market continued at subdued levels as balances increased (marginally in some cases) across all products. Rising serious delinquency rates across most of the major lending products indicate that macroeconomic challenges have taken its toll on consumers and may have compromised their ability to meet financial obligations.
Originations: Clothing and home loans were the only credit products that showed year-on-year (YoY) growth in originations; however, for home loans, this was enhanced by the comparison to what was a weaker quarter for originations in Q4 2017. Despite posting the YoY highest origination growth across all products in Q4 2018, the clothing sector has slowed in comparison to growth levels seen over the last year. Credit card and bank personal loan originations decreased by 15% and 0.5% YoY, respectively, which may be due to a combination of tighter underwriting by lenders and weaker consumer demand.
Balances: Generally, YoY balance growth across consumer credit products was sluggish in Q4 2018 compared to previous quarters; however, ALL products noted positive outstanding balance growth. Growth was largely boosted by increased new account credit limits for credit card (16.4% YoY) and personal loans (23.7% YoY). These higher new account amounts were likely due to the shift in lender origination strategy over the past year to lower-risk borrowers.
Delinquencies: There have been mixed delinquency results in unsecured lending sectors, with stable or improving performance for numerous products including credit cards as well as retail accounts. The serious delinquency rate for credit cards, measured as the percentage of card accounts three months or more in arrears (3+MIA), fell to 11.6% in Q4 2018, a 160 basis point (bp) improvement from Q4 2017. However, the recent uptick in home loan delinquency, and the more sustained increases in VAF delinquency, show that consumers are still under strain in the current environment.
Overall, industry data suggests that lending markets are expanding, albeit at a sluggish pace. The consumer credit landscape requires close monitoring in coming quarters as lenders strive to strike a balance between protecting their portfolios while continuing to provide the necessary access to credit to those consumers who need it.
“As lenders continue to adapt to changing economic conditions, they have shifted their originations strategies to focus more on lower-risk consumers over the past year. A result of this shift in focus is that lenders have been able to issue larger loans and credit limits on these new accounts based on the higher likelihood of repayment by these borrowers. It will be interesting to see if this trend continues in the coming months as lenders respond to still challenging, but improving, economic conditions”
- Carmen Williams, Director of Research and Consulting
About the TransUnion IIR Report
TransUnion’s South Africa Industry Insights Report is an in-depth, full population-based solution that provides statistical information every quarter from TransUnion’s national consumer credit database, aggregated across virtually every active credit file on record. Each file contains hundreds of credit variables that illustrate consumer credit usage and performance.
By leveraging the Industry Insights Report, institutions across a variety of industries can analyse market dynamics over an entire business cycle, helping to understand consumer behaviour over time. The South Africa Industry Insights Report looks at major consumer lending categories: credit cards, personal loans, home loans, vehicle and asset finance (VAF), and clothing. The report primarily focuses on three dimensions across these categories: originations (new accounts opened), balances (outstanding total and average lending balances) and delinquencies (accounts in payment arears).