South Africans under the age of 40 accounted for 75% of all short-term fixed-term loans extended by lenders as at the end of 2016 – and the situation could deteriorate further with the country’s recent ratings downgrade.
These are among the figures on consumer credit behaviour for the fourth quarter of 2016, released by credit bureau Compuscan.
Jacobus Eksteen, senior data analyst at Compuscan, comments: “There was a 14% increase from Q3 2016 to Q4 2016 in the total number of short-term fixed-term loans [see editor’s note 2] that had been taken out by consumers. Most notably, almost 50% of all short-term fixed-term loans greater than R4 000 and less than R8 001 belonged to consumers aged 18 to 40 as at the end of Q4 2016. We also noted a major quarter-on-quarter increase in the number of accounts in this category that had been extended to consumers in this age group.
“In other words, we saw that the younger population was more likely to hold these types of loans.”
It can be assumed that this age group had been under financial pressure and relied on access to short-term fixed-term loans (R4 001 and more), or had a preference for this loan type, to cover shortfalls. Eksteen suggests that young consumers may have used these funds to cover their basic expenses such as fixing cars, buying groceries, holiday-season spending and the likes.
He adds: “It seems unlikely that pressure on younger South Africans has been alleviated during the current quarter. With the country’s sovereign status now downgraded, and loans likely to become more expensive, the future looks bleak for those already needing to borrow to meet their basic expenses. Companies will most likely need to pay more to service debt, thus reducing their profit and potentially increasing pressure on consumers by offering lower value for money to try to compensate.
“Further, economic growth stems from consumers’ ability to spend and with this being impacted, the economy will also be negatively affected, resulting in fewer jobs and less disposable income amongst consumers.”
Compuscan’s data reiterated that the youth were – and no doubt remain – more likely to take short-term fixed-term loans rather than large-value unsecured loans with longer pay-back periods where the limit is determined by the credit provider based on its risk appetite. The bureau’s latest figures show that a significant portion – almost 80% – of unsecured loans (greater than R8 000 and with terms longer than 6 months) belonged to individuals older than 50 as at the end of Q4 2016.
“It is likely that financial institutions perceive older consumers as less risky for a fixed-term unsecured loan, primarily due to the fact that they have a long employment history or sufficient credit history to warrant a good credit score and successfully qualify for a loan,” says Eksteen. “This is, however, a matter that is being addressed by Compuscan as it – together with Coremetrix, a UK-based company – recently introduced psychometric testing as a means to assess consumers’ creditworthiness where little credit history is available.”
Looking more generally, on consumer level, Compuscan further noted a 4% increase in the number of consumers whose credit report indicated their worst position as one to two months in arrears and a 6% increase in the number of consumers whose worst position was an adverse enforcement.
On account level, Compuscan’s data additionally revealed that there were approximately 50,7 million open and active accounts listed on the bureau as at the end of Q4 2016. There was a 7% increase in the number of accounts that were one to two months in arrears and a 6% increase in accounts that were three or more months in arrears.
“These figures provide reason for concern as accounts that are one to two months in arrears could easily reach the point of being three or more months in arrears, or worse,” Eksteen says. “In fact, there was a significant quarter-on-quarter increase (10%) in the number of accounts with adverse enforcements which points to consumers’ inability to keep up with their account payments.”
