NOMPU SIZIBA: The newly-released TransUnion quarterly Industry Insights Report [IIR] was released today, Thursday. It shows a significant increase in the amount of credit being taken out by consumers, with unsecured lending recorded as up 12% in the second quarter.
Well, to take us through the report, I’m joined on the line by Carmen Williams. She’s a director of research and consulting at TransUnion. Thanks very much for joining us, Carmen. What trends are you seeing in terms of credit uptake by consumers?
CARMEN WILLIAMS: What we have seen in this most recent quarter is that there certainly has been an increase in total balances – total consumer debt. As you mentioned in your introduction, specifically from an unsecured lending perspective we have seen that these debt levels have risen quite substantially for the last two quarters.
NOMPU SIZIBA: So where are you seeing these increases? Is it on credit cards, personal loans? Where are you seeing these trends?
CARMEN WILLIAMS: We are actually seeing those trends come through throughout the unsecured lending portfolios – that’s credit cards as well as bank and non-bank personal loans. For credit cards we’ve seen balances increase by 12% year-on-year. For non-bank personal loans we’ve seen them increase by 13% year-on-year, and bank personal loans we have seen increase by 10% year-on-year.
It definitely does give an indication that consumers are relying more and more on these type of products, these consumption-driven products for daily expenses, to make ends meet.
NOMPU SIZIBA: That’s rather worrying, what you say. We have the National Credit Act and, when we are interfacing as consumers with credit lenders, they are supposed to do an affordability test on us before they decide to give us a loan, confident that we’d be able to pay it back. So how does this happen if people are literally borrowing money for day-to-day needs?
CARMEN WILLIAMS: We do work quite closely at TransUnion with the members in the industry, and we make sure that our members are equipped with adequate tools to be able to make the best credit-granting decisions. But what we are seeing come through, from the National Credit Act perspective, as just indicated, I think it’s important to understand the objective of the act. The objective of the act is to primarily protect consumers from untoward credit granting or credit practices. And what we’ve seen in recent times is that times have changed and we’ve seen the economy become more volatile.
NOMPU SIZIBA: Yes.
CARMEN WILLIAMS: In these type of progressions we are seeing quite a few amendments to the National Credit Act in order to mitigate against these progressions.
NOMPU SIZIBA: But in terms of what’s happening right now, we’ve heard about this act that’s basically going to make it easier for people’s debt to be written off. Just speak a little about that, and how it’s going to impact the picture that we are seeing.
CARMEN WILLIAMS: The Debt Intervention Bill is just an amendment to the National Credit Act. It’s important to unpack the aim of this bill. And the aim of this bill is to provide relief for vulnerable and the most distressed consumers in the market. Whether or not this bill will be successful in meeting those objectives remains to be seen, but the intention is to provide relief for these consumers. The regulator has not as yet indicated how this is going to be rolled out, but we at TransUnion are working closely with the members, as well as the regulator, to unpack this and the impact it will have on consumers in general.
NOMPU SIZIBA: Carmen, isn’t there a problem? Of course, you will be working with your more established banks – the big five and other established banks along with them, but we’ve got a situation in South Africa where you have shadow banking, non-financial services players, also in the game of lending money. So it gets a little bit complicated and murky.
CARMEN WILLIAMS: It does indeed. To that point most members are required to register with the regulator. However, we do see quite a few in the informal market, and that is something that consumers need to be aware of because they may be put in a position where they extend themselves too much, and find themselves in a position where they are forced to default just in order to make ends meet.
NOMPU SIZIBA: From your research, is there cause for concern around debt-payment delinquency going forward? Could we potentially see a crisis in the country, despite the fact that we have the National Credit Act? Maybe not with the major banks, as I mentioned, but perhaps with these so-called shadow banks?
CARMEN WILLIAMS: What we have seen from the data is that there has been an increase in arrears. So we look at serious levels of delinquencies, which refers to missing three or more consecutive payments. And, from an unsecured perspective, we have certainly seen an uptick in that over the last few quarters. Specifically, maybe, to the market that you mentioned, in the non-bank personal loans, it seems those delinquency rates increased quite dramatically; in fact, they’ve increased by about 720 basis points over the last year.
So, there is certainly a reason to be concerned. And I think what we’ll have to do is monitor the situation within the next few quarters to be able to make definite conclusions.
NOMPU SIZIBA: Yes. And then, what about on the secured lending side – what trends are you seeing? The data that keeps on coming out of the Reserve Bank seems to suggest quite tepid growth on that front.
CARMEN WILLIAMS: Indeed. Growth has been tepid. From a vehicle-finance perspective we’ve seen that originations, which are new accounts, have gone down by about 3% year-on-year. We’ve also seen, from a home-loan perspective, new accounts have gone down by about 14% year-on-year. And while we don’t want to read too much into one quarter from this data, it’s important to understand that with the home-loan market, consumer sentiment is quite important. Consumers would need to feel quite positive and confident when looking at taking on a long-term financial debt and commitment. And that decline in new accounts gives an indication that consumers would prefer, at this particular point in time, to look at alternative options – for example, renting.
NOMPU SIZIBA: Of course this is a new report that you are issuing to the market, but no doubt you’ve been collating data in previous quarters. Broadly speaking, what’s the trend that you are seeing?
CARMEN WILLIAMS: What we are seeing from a secure perspective is that, and with vehicle finance specifically, we’ve seen over the last two years that there has been a persistent and consistent increase in serious-level of delinquencies over the last two years when it comes to vehicle and asset finance. In fact, that particular product has been increasing incrementally in delinquency rates over the last nine quarters. We are now seeing that whole node as well moving towards that trend. This is the fourth consecutive quarter that we’ve seen an increase in the delinquency rate.
NOMPU SIZIBA: Not a good picture at all, but I suppose a reflection of what’s happening in the economy. Thank you very much, Carmen, for your time and your insights.