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Younger consumers upping their credit balances more than older peers – report

At a household level, could SA be moving towards a debt crisis? TransUnion director of research and consulting Carmen Williams gives the facts.

NOMPU SIZIBA: TransUnion has released the latest Industry Insights. It shows that in the first quarter of 2021 the number of credit-card accounts declined by 4.5%, compared to the same time last year. However, outstanding credit balances were up 7.7% on an annual basis. Personal loan accounts came down by 6.3% year on year, but outstanding balances rose by a whopping 12.7% in the first quarter, compared to the year before.

To tell us about the findings I’m joined on the line by Carmen Williams. She’s the director of research and consulting at TransUnion South Africa. Thank you very much, Carmen, for joining us. Even though credit-card and personal loan accounts declined in the period, people are still borrowing a whole lot more money. Just tell us more.

CARMEN WILLIAMS: Indeed. Thanks for having me, Nompu. Yes, this is what we’ve seen. And we seen that specifically for unsecured credit, like credit cards and personal loans these debt balances are increasing, and this is primarily as consumers continue to take strain under the pandemic. They are looking to bolster their household finances to make ends meet using this unsecured credit.

NOMPU SIZIBA: That’s quite a worry because perhaps you and I still have jobs and all of that, and we can manage to dip in and borrow money and then pay it back. But do you think some people are actually living off debt?

CARMEN WILLIAMS: The data does definitely give indications in that regard, especially when we look at things like delinquency rates. Delinquency rates refer to accounts that have missed payments for three or more months. We have seen an uplift trend when we come to that.

Looking at credit cards, we see delinquency rates increased by 20 basis points over the last year. For personal loans, bank personal loans, those increased by 40 basis points. But most concerning were non-bank personal loans, that increasing delinquency rate was 680 basis points compared to last year this time. While we know that non-bank personal loans are primarily serving high-risk consumers, the fact that they are taking strain as a result of the pandemic, we are seeing these delinquency rates increase.

NOMPU SIZIBA: So what’s the attitude of financial lenders? Of course we know that they’re guided by things like the National Credit Act – are they risk-averse these days, or less so?

CARMEN WILLIAMS: Well, I would have to say that the data does indicate that they are somewhat cautious, approaching the markets quite cautiously. The reason for that is when we look at originations the number of new loans that have been extended for unsecured credit – this has been down significantly on a year-on-year basis.

Looking at credit cards, new originations – so new loans given – were actually down by 48% year on year. For bank personal loans it was 34%, and for non-bank personal loans down by 18% year on year. So it’s certainly an indication that lenders are being really cautious around who they are extending new credit to, understanding that consumers are still taking strain.

NOMPU SIZIBA: I’m a bit confused, Carmen. So who are they extending credit to, then? Is it existing customers?

CARMEN WILLIAMS: Exactly. This is what the data is indicating – that these balance increases are primarily coming from existing customers. So consumers with whom lenders already have a relationship, understand their payment behaviour and risk profile, and within the lender’s risk appetite see it fit to extend further credit.

NOMPU SIZIBA: And then what are you seeing in terms of secured lending, things like mortgages, because we’ve been hearing that there have been parts of the property market that have been doing quite nicely? Is that evidenced in the data?

CARMEN WILLIAMS: Absolutely. Definitely when we are looking at balance growth and origination growth there is certainly a divergence, and this divergence gives us an indication that some consumers have certainly been impacted. But then there are some consumers who have not been financially impacted by the pandemic – and we see this coming through in the secured numbers.

We’ve actually seen balances increase for home loans by 17% year on year, and for vehicle finance about 16.7%. This gives us an indication that those consumers who have not been impacted by the pandemic certainly do have more appetite to spend.

And when we look further at the home loan data, you can actually see that the average new loan amount increased by 44% year on year. This means that consumers are buying more expensive homes, really taking advantage of the low interest rate, and are investing in new property. That tells us that this divergence we’ve seen between secured and unsecured is definitely testament to the fact that some consumers have been hard hit by the pandemic, but then others have the appetite to extend and grow their assets.

NOMPU SIZIBA: Very interesting. What trends are you seeing in how younger people borrow money?

CARMEN WILLIAMS: Very interesting. We actually did a deep dive on the credit-card balances to look if there are any generational trends being noticed. And what we found was that younger generations definitely are counteracting and spending more with regard to their credit cards.

For millennials the percentage change for credit card balances was 9%, compared to 4% for GenY. And in fact, for Baby Boomers, the older generation, we saw a decrease in credit-card balances. So younger generations are definitely moving in terms of credit-card balance spend. And when we think about the reasons why, we understand that younger generations tend to transact more online, they tend to be more tech-savvy and more open to these transactions and online purchases. So that does make sense why we see that generational divide for credit cards balances.

NOMPU SIZIBA: At some point the debt-to-income ratio at a household level actually improved nicely. I can’t remember the figure, but you’ll tell us. Has that worsened in recent times, especially on the back of Covid? How does that look? And are you concerned, based on what you see with the data that South Africa at household level could be moving towards a debt crisis?

CARMEN WILLIAMS: That’s a tough one to answer at face value, Nompu. It’s really because, as I’ve mentioned a couple of times now, there are people who have been impacted and people who have not. There is certainly income disparity in the country. Those who have been impacted have been impacted severely – and they aren’t the majority of consumers. Those who have not been impacted, just in terms of the weight that they hold, they kind of outweigh those that have been impacted. So at face value the data indicates that from a household-debt level things seems to be stable and on the up.

But in reality, when we think about these income disparities there is certainly a greater dynamic at play that the data is not unmasking.

NOMPU SIZIBA: Okay, Carmen, thank you very much for those insights. Lovely talking to you as always, Carmen Williams is the director of research and consulting at TransUnion South Africa.

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What they need is Financial Education!!! That’s right how to avoid the traps and pitfalls of debt, insurances & questionable investments. Financial Fitness

As an old man I can confirm that I needed more credit when I was younger and zero credit currently. I could not buy a house and a car and provide for a growing family without credit when I was 30. Now the kids are doing their own thing, the house is paid off, the car is old but paid off and I have zero need for credit. It is how life is. There is nothing more to read into it. Definitely not that millennials are irresponsible and boomers are miraculously responsible.

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