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Fewer consumers defaulting on their debt

But South Africans are still highly indebted, says TransUnion CEO Lee Naik.

NASTASSIA ARENDSE:  The TransUnion Consumer Credit Index was published today. It declined slightly in the third quarter, though it continues to reflect marginally improving consumer credit health. The CCI dropped slightly to 53.9 in Q3, and that’s from 54.1.

This is the conversation I had with Lee Naik, the CEO of TransUnion South Africa.

LEE NAIK:  Coming out from this quarter’s report we had a marginal decrease from 54.1 to 53.9, so a 0.2 decrease in our index.

The key indicator as to why it actually started to decrease is that we at TransUnion measure something called credit defaults and what we are going to see is that even though we’ve seen fewer consumers go into default, we’ve seen a slower decrease when compared to previous quarters. So consumers are still highly indebted. In fact, in our report we state that the national household bank debt as a percentage of disposable income comes in at 72.4%. So we are a highly indebted society generally. But the key decrease in the CCI indicator was because the number of accounts that are going into default actually decreased at a slightly lower rate than the previous quarter.

NASTASSIA ARENDSE:  Given the difficult economic conditions South Africa is finding itself in, including a possibility of downgrades later this year, perhaps even next week – some are talking about Moody’s even coming in and downgrading – does this paint a picture that is not so pretty, especially for consumers?

LEE NAIK:  Well, it’s been a tough environment for consumers for quite a while, and it’s been quite difficult for lenders to extend credit generally to consumers. And we’ve seen increased consumers out to deleverage and reconfigure how they actually take on new debt. I think with the recent announcement in the medium-term budget we have to realise the deficit in terms of the tax collections, and that starts to create a concern as to how government will fund the deficit. That could mean the possibility of further interest-rate cuts actually falling away.

For the end-consumer, one needs to start to think about how one can see the tightening of spending that can actually be held back as it was taking on new credit debt.

NASTASSIA ARENDSE:  The Consumer Credit Index – what are some of the key macroeconomic data that it incorporates?

LEE NAIK:  Well, on a quarterly basis on one part TransUnion, as the largest credit bureau in the country, uses the data we track. And we track about 52.8 million consumer accounts, of which about 25 million are credit-active and that’s one component of our index.

The second is public data we get from the South African Reserve Bank as well as from Stats SA.

And thirdly we partner with an organisation called ETM Analytics. It helps us to drive some proprietary analytics together with our own analytic resources to actually complete the three-party rating of our index.

The index has been in operation since around 2007. It’s something that’s well established as a good indicator as to how credit health is working in South Africa.

NASTASSIA ARENDSE:  What are some of the key concerns for you going forward, especially when you look at the situation that consumers find themselves in, and also the overall economic environment going forward?

LEE NAIK:  I think the key thing is that even when we saw that the Reserve Bank had a slight improvement in the prime lending rate by 0.25%, we saw that people are starting to deleverage generally, meaning that their debt services costs are declining on a year-on-year basis.

I think as we go forward, given the uncertainty in the global as well as the local macroeconomic environment, the pressure on disposable income will still be a concern, and primarily because of the lower wage growth, as well as the uncertainty in the macroeconomic variables. And consequently you’ll find that consumers will still be under pressure to meet the requirements of their daily commodity purchases. Ultimately they’ll be forced to consider taking on new credit and that will be a hard balance going into the peak holiday season at the year-end, to make sure that every cent you have is targeted at alleviating debt and paying off some of the high-interest debt, as opposed to splurging on the unnecessary perks or lovely purchases, specifically in the Christmas holiday break.

NASTASSIA ARENDSE:  We’ll have to leave it there. Thanks to Lee Naik.

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