South Africans’ demand for credit increased over the last quarter, with the Gen Z cohort (people born between 1995 and 2010) driving growth, particularly in the unsecured credit market. This is according to the “TransUnion Industry Insights Report: Quarterly Review of Consumer Credit Trends” for the second quarter of the year.
Collectively, South Africans owed about R2.37 trillion in household debt at the end of June, according to the report, up 3.7% year-on-year. About half of this money (R1.2tr) is in housing loans; about 24% (R580 billion) is in vehicle finance; and the remaining 26% (R626bn) is in unsecured debt.
The average new vehicle loan amount in the second quarter was R394 670 and the average new home loan amount was R940 675.
Credit for consumption
Unlike housing and vehicle loans, unsecured credit is credit not backed by assets (known as “collateral”) that can be repossessed by the credit provider. TransUnion distinguishes four categories of unsecured products: credit cards, clothing accounts, retail accounts (subdivided into instalment credit and revolving credit), and personal loans (including non-bank loans).
Concerningly, South Africans continue to use unsecured credit overwhelmingly for everyday consumption – in other words, buying groceries, clothes and household goods on credit. This is unsustainable in many instances, because it means you cannot cover your monthly living expenses and can lead to a larger and larger portion of your income going towards paying off debt, with you having little to show for it.
Transunion reports that the number of new credit accounts grew 15.2% year-on-year. Younger consumers, Gen Zs and Millennials (born 1980-1994), accounted for 62% of new accounts opened during the second quarter. Consumption-led products grew 16.8% year-on-year, primarily led by clothing, which constituted 83% of all new accounts.
However, relief appears to be on the way, as inflation slows, interest rates start coming down and the economy revives. “Growth in new credit products issued and use of existing credit is typically driven by economic requirements as consumers take on credit to boost their available income during challenging economic times. However, there is hope on the horizon as inflation decreased during the quarter, with annual food price inflation at its lowest since late 2020. Consumers are likely to see further respite in the coming months, along with the reduction in interest rates, with this combination likely to provide relief to stretched household budgets,” said Lee Naik, CEO of TransUnion Africa.
Gen Z takes on credit
Another quarterly study by TransUnion, its Consumer Pulse Study, which explores how consumers’ personal finances have changed and what they expect in the future, found that young working people of the Gen Z group have the highest expectations of what credit can do for them. Almost all (96%) of Gen Z respondents to the survey indicated they believed it was important to have access to credit and lending products to achieve financial goals, but only 32% believed they had sufficient access to credit. Two-fifths (41%) said they planned to apply for new credit or refinance existing credit in the next year. Gen Z’s top three anticipated products among those who wanted to apply for credit were: personal loans (35%), credit cards (26%) and student loans (25%).
The number of new credit card accounts was up 9.3% year-on-year, primarily due to the continued growth within the Gen Z (up 22.7%) and Millennial (up 7.5%) segments. Gen Z’s share of new accounts increased 2.3% from 19% to 21.3%.
“As more of this demographic reach working age, the preferences toward meeting their consumption needs through e-commerce platforms and on-demand services will continue to fuel growth in demand for credit cards,” the report says.
Delinquencies down
Delinquent accounts are credit accounts that are more than three months in arrears. Rates remain high in unsecured products, although they did drop slightly over the second quarter. Only in home loans did delinquencies rise. The delinquency rates are as follows:
• Personal loans: 32.6% of 12.3 million accounts (down 2.4 percentage points)
• Clothing accounts: 28.5% of 17.1 million accounts (down 1.5 percentage points)
• Retail instalment accounts: 27.9% of 1.2 million accounts (down 1.8 percentage points)
• Retail revolving accounts: 17.4% of 2.2 million accounts (down 2.3 percentage points)
• Credit card accounts: 12.4% of 7.1 million accounts (flat)
• Home loans: 7.2% of 1.9 million accounts (up 0.5 percentage points)
• Vehicle finance: 5.4% of 2.1 million accounts (down 0.1 percentage points).
The overall improvement in delinquency rates indicated that lenders were being more cautious in managing risk while also supporting consumers in managing their debt levels, TransUnion said in its report.
PERSONAL FINANCE