NASTASSIA ARENDSE: TransUnion released the findings of its fourth-quarter (Q4) 2020 South Africa Industry Insights Report (IIR) that looks at the unemployment period as a result of the Covid-19 pandemic. But it also looked at what the consumer credit market looks like right now. Here’s my conversation with Carmen Williams, a director of research and consulting at TransUnion South Africa.
CARMEN WILLIAMS: Thanks so much. Well, I think there are three things here that are important to point out. The first one is that there’s certainly evidence that suggests that lenders do remain cautious in targeting lower-risk borrowers when it comes to extending new credit.
The second one is that we certainly are seeing a two-speed credit market emerging with, marked differences in supply and demand when it comes to secured. Those are credit products that are backed by an asset versus being unsecured.
Then the third one is that we are certainly seeing a mixed picture when it comes to delinquencies, while most products have deteriorated from a default perspective.
There is one product, the credit card, that has actually jumped this trend and we are seeing defaults for credit cards improving.
NASTASSIA ARENDSE: You were talking about delinquencies across most credit products deteriorating in Q4. Is that as a result of the pandemic and the recession, or were you starting to see an overall deterioration over the quarters?
CARMEN WILLIAMS: Well, we had a deterioration even prior to this pandemic. This certainly accelerated for some products, for example clothing accounts – we’ve actually seen clothing-account default rates deteriorate by 640 basis points compared to the same period last year.
When it comes to credit cards, that one certainly is one to note in terms of the fact that credit-card delinquency rates have remained in fact somewhat improved by about 10 basis points over the last year. What this is telling us is that consumers are really putting a priority on paying their credit cards because such a product comes with a lot of utility and liquidity. As we know, the credit card is a revolving type of account, so you can pay it and then use it again. Especially during this time with online transactions increasing exponentially over the last year or so as a result of Covid, consumers are more and more looking after their credit cards as opposed to any other product.
NASTASSIA ARENDSE: When you look at the metrics for vehicle finance and household or home loans, what are you reading into that in terms of what the data is showing?
CARMEN WILLIAMS: What the data is showing is that, when we look at new accounts that originated for these particular products in Q2 in 2020, those originations, as well as enquiries, were down considerably – around 50 or 60%.
What we’ve seen in the most recent quarter is that there has been an indication of a rebound that, while compared to last year the figure is still down, it is down much less compared to other products.
For specifically home loans we see originations down 14%, for vehicle finance down 6%. And this is a massive improvement when compared to the quarter before.
NASTASSIA ARENDSE: I’m curious – perhaps you can school me here a little bit. Your report covers credit cards, bank personal loans, non-bank personal loans, home loans and, as we’ve discussed earlier, vehicle finance. How is the report put together, how is the data being fed through to your team?
CARMEN WILLIAMS: Well, TransUnion has access to all consumers’ credit records as TransUnion has one of the biggest bureaus in the country on consumer credit. We get about 25 million consumer credit records. This data gets updated on a monthly basis. Providers would submit the data as a requirement by the National Credit Regulator. So all lenders’ banks would submit the data and based on the data that is submitted, we therefore do some analysis on these metrics such as originations – which is new accounts – balances, total debt and delinquencies, specifically looking at those delinquencies around consumers who have missed three or more payments in a row.
NASTASSIA ARENDSE: We are living in a world where there’s still a little bit of uncertainty around the vaccine rollout and the pace of that, and perhaps even the easing of restrictions, or perhaps even the imposing of restrictions. We are still talking about this third wave that might come – we might not see it, we don’t know yet. How does that impact consumers and lenders, especially right now when we know that household finances remain stretched?
CARMEN WILLIAMS: Exactly. We are actually seeing this in the data, both from a consumer-demand perspective as well as a lender-supply perspective. From both of these perspectives we are seeing that both consumers and lenders are being super cautious. Consumers are not making as many enquiries as they did a year ago, and lenders are not making as many originations as they did a year ago. And that really to your point speaks to these unprecedented times, the uncertain and volatile economic conditions.
But it’s good to see that both lenders as well as consumers are approaching cautiously when it comes to over-extending themselves unnecessarily.
NASTASSIA ARENDSE: On that note then, what sort of events or metrics are you going to be paying attention to as you compile the next part of your report?
CARMEN WILLIAMS: We definitely want to keep an eye on overall delinquencies; we definitely want to also see the impact that payment holidays and other relief programmes have had on delinquency. So delinquencies will definitely be a key focus. This will be important both for consumers and lenders, for lenders to be able to ensure the health of their portfolio, and from a consumer perspective for us to be able to identify if consumers are finding a way to make ends meet and protect their credit profiles accordingly.
NASTASSIA ARENDSE: Carmen Williams is a director of research and consulting at TransUnion South Africa.