Financially stressed consumers defaulted on debt valued at R13.45 billion for the first time between May and July.
The inaugural Experian Consumer Default Index (CDI), which measures the rate of default – outstanding loan balances in arrears for 90 or more days reflected a reading of 3.57% compared with 3.81% registered in July 2016. David Coleman, chief data officer at Experian, said the improvement may be due to a slowdown in credit extension following increased regulations, as well as the introduction of pricing caps and lower interest rates.
The index measures the rate of first-time default of 14.7 million consumers across 18.4 million active home, vehicle and personal loans as well as credit card accounts with some R1.54 trillion in outstanding debt.
As expected, it shows that the rate of default on loans secured by assets such as homes and vehicles is less than that of personal loans and credit card debt. At 8.54%, personal loans registered the highest rate of default with R5.12 billion in new defaults recorded between May and July. The rate of default on credit card debt was second highest at 6.91%, equivalent to R1.78 billion.
According to Experian, vehicle loans were the only product class to have registered an increase in the annual rate of default from 2.85% to 3.13%, which is likely to be linked to a decline in vehicle sales. “If the base is not growing as quickly as it should, the default will continue to flow through. Growth will not hide any of the defaults written in previous periods,” Coleman explained.
The rate of default on home loans improved marginally from 1.9% to 1.84%.
Experian found that the rate of default was lowest in the Western Cape and Gauteng at 2.59% and 3.35% respectively while Limpopo was highest at 4.4%. It noted that the best performing consumers tend to be located in areas with higher levels of urbanisation, education and affluence.
In analysing the data alongside Mosaic – its system that classifies the South African population into different segments based on socio-demographics and behaviours – it found that lenders advanced the most debt to a so-called Hard-Working Money segment, classified as an A-type. Total credit exposure for the segment – comprising relatively well educated 35 to 49 year olds with an annual household income in excess of R150 000 – stood at R203.25 billion, with default behaviour improving from 3.13% to 2.99% year-on-year.
Default behaviour was highest among Indigent Township Families, classified as an F-type segment, deteriorating from 7.13% to 8.15%. Per its research Indigent Township Families comprise 3.86% of the population and are largely aged between 25 and 29 years old, have limited education and an annual household income of less than R38 200.
Coleman said that there is still room for lenders to extend loans to what Mosaic classifies as an E-type segment, made up of so-called Generational Township Families, Middle-aged Marginalists, Coastal Low-Wage Households, Informal Country Tenants, Breadline Families and Modest Township Living. “It is surprising that not much lending is occurring in those middle type segments. If the economy is to grow, you would expect that to come from the middle class so they do need some kind of capital injection to finance asset formation…. Proportionately, the middle segments are bigger and over time you will see more credit extension because [lenders] can’t play in that 3% market all the time”.