The rate of first-time defaulting debt balances declined from 3,78% in August 2016 to 3,44% in August this year, amounting to a total default amount of R13,13-billion during the period June to August 2017.
The short-term monthly trend on Experian’s latest Consumer Default Index (CDI) also showed an improvement from the Experian CDI in July where the overall reading was 3,57% and the first-time consumer debt default value was R13,45-billion over the period May to July 2017.
Simon Russell, MD of Experian South Africa, attributes August’s improvement to more stringent lending practices by credit providers as well as inflationary pressure relief and declining interest rates for consumers.
However, not all consumer segments in South Africa are experiencing an improvement in the rate of first time credit default. By overlaying Experian’s Mosaic consumer segmentation, which classifies the entire South African population into 36 unique types and nine overarching groups, it becomes apparent which consumer segments in South Africa are experiencing the most financial strain.
As seen in Experian’s CDI for July, ‘Indigent Township Families’ remained the worst performing market segment of the CDI, deteriorating to 7,93% in August this year compared with 6,81% recorded in the same month last year. This segment also recorded the biggest increase in the rate of first time credit default compared to all other consumer segments.
This segment represents 3.86% of the South African population and are predominantly aged 25 to 29, have limited education beyond grade 12, earn less than R 38 200 in annual household income and stay in rented informal dwellings.
At a product level, this segment also recorded the worst CDI for both personal loan default at 11,52% and credit card default at 11,87%. The personal loans CDI for August represents a significant deterioration on the 8,68% recorded in August 2016 with R107-million in value rolling into default for the first time over the period June to August 2017.
Although the CDI for credit cards improved year-on-year from 13,08% in August 2016, the credit card default rate of 11,87% represents the worst recorded CDI across all products types and segments — even deteriorating at higher levels than observed on personal loans.
It is important to consider the dynamic debt pressure on the country’s different consumer groups at a granular level to avoid applying an overall Index reading to all consumers, says Russell. The objective of enriching the credit data with Mosaic, is to be able to offer valuable insights as to which consumer segments are under financial stress and where they are located. These insights will help key role players such as government and lenders create approaches with targeted intervention for each of the affected groupings.
In July the best performing segment was the ‘Midlife Cruisers’, characterized as highly educated wealthy individuals residing on exclusive estates in luxury homes in prime city suburbs. This segment recorded a CDI of 1.96 in August, but was eclipsed for best performing position by the ‘Secured Affluence’ segment who recorded a CDI of 1.92. T
he “Secured Affluence” segment are typically mature, well educated, wealthy couples living in free-standing high-value established homes in city suburbs and comprise 2,65% of the South African population.
Of note is the improvements observed in the up-and-coming segments from the largely youthful and ambitious segments of aspirational people, looking to make their mark and embrace the country’s marketplace. Amongst this group, the ‘Would-be Wealth’ segment showed the greatest improvement from 6,20% in August 2016 to 3,98% in August 2017.
The ‘Would-be-Wealth’ segment consist of young aspirational families living in good homes in up-and-coming areas, and the first to have such opportunities and living spaces due to greater levels of education and earning potential.
Another up-and-coming segment worth mentioning is the ‘City Convenience’ segment who are young working couples and retirees, living in small apartments in city centres embracing the convenience and lifestyle cities offer. This segment recorded the second greatest improvement and ranked among the best three segments overall as well as for credit cards and home loans.
‘Hard-Working Money’ still holds the largest outstanding balances and showed improved year-on-year with a CDI of 2.91, but did show accelerated deterioration on Personal Loans.
The Experian CDI, which also tracks the debt default behaviour across a number of product types, shows year-on-year improvements were observed in home loans, personal loans and credit cards, while vehicle loans remained flat.
Though the rate of new default among most products as well as segments with the greatest outstanding debt have slowed, consumer segments with lower levels of education and earning potential as well as significant unsecured credit exposures, are in fact experiencing greater default rates.
“It is encouraging to note the significant improvements in the young up-and-coming segments that have been elevated from the same backgrounds by better education, resulting in greater literacy and earning potential,” says Russell.