The rate at which people defaulted on their loans for the first time decreased in the second quarter of the year, according to Experian South Africa’s Consumer Default Index (CDI).
Although consumer debt remains at R1,9-trillion, the index improved from 4.33 in March to a reading of 4.03 in June 2021. The improvement can be attributed to the stringent lockdown criteria imposed 12 months prior, resulting in significantly reduced credit extension and thus an expected improvement in the overall CDI performance.
Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa, says: “We have seen new business volumes decrease since the onset of the Covid 19 pandemic, thus reducing the population from which first-time default stems. While we have seen the demand for credit improve to pre-Covid levels over the past 12 months, the supply remains constrained due to the continuous conservative lending criteria imposed by most lenders.”
At 4.03 in 2021 Q2, the year-on-year CDI is tracking lower than the all-time high of 5.68 observed in 2020 Q2, following the initial level 5 lockdown that was imposed on 27 Mar 2020.
According to Van Jaarsveldt: “The CDI improved year-on-year across all products, most predominantly home loans, which improved from 2.90 in 2020 Q2 to 1.83 in 2021 Q2. Home loans account for more than 50% of the composite CDI and as such was the driving force behind the improvement, supported by improvement in all the other banking and retail products.”
Over the past year (2020 Q2 to 2021 Q2), Financial Affluence Segmentation (FAS)¹ Groups 1 and 2 have exhibited the least significant improvement (CDI % change).
Van Jaarsveldt explains: “Since the onset of COVID, we again see the most affluent consumers benefitting least from the improvement in CDI. There was a noteworthy impact on Luxury Living group as they are highly exposed to secured credit resulting in a relative CDI improvement of 22%, moving from 3.85 in June 2020 to 2.99 in June 2021.
The Aspirational Achievers group, also highly exposed to secured credit, saw a CDI improvement from 4.95 in June 2020 to 3.68 in March 2021 which is also relatively modest, compared to the improvement observed for less affluent FAS Groups.”
The Yearning Youth group, which makes up about 16% of the SA population, saw the greatest relative CDI improvement from 21.61 in June 2020 to 12.63 in June 2021 (42% relative CDI change). Their exposure to secured credit is negligible (<1 %).
However, exposure to unsecured credit – particularly retail loans, is more substantial at 6%. The significant improvement in CDI in 2021 Q2 stems from levels of credit granted in particularly in the retail industry, where many providers opted for more stringent lending criteria along with the impacts of the hard lockdown criteria at the at the start of the pandemic.
Women constitute just over half of South Africa’s adult population². However, women represent just over a third of the market when looking at the Rand value of their exposure. This is because, at an individual level, women typically take on less debt than their male counterparts do.
Women are particularly underrepresented in secured lending products – both in terms of consumer numbers and market exposure. But, interestingly, women account for almost two-thirds of the market (both in volume and value) with regard to retail loans.
When comparing the distribution of product holding between men and women, we again see that women make substantially more use of retail loan products than their male counterparts, with roughly half of the female consumers on the credit bureau having retail loans (versus 31% of males).
The value of these loans is only a fraction of the banking loans – mainly secured lending like home loans and vehicle loans. As a result, retail loans only constitute 3% of the total exposure of women in the South Africa market (versus the 1 % of men). Conversely, 46% of women’s exposure is in home loans, while 55% of men’s exposure is in home loans.
Van Jaarsveldt concludes: “In general, South African women exhibit a lower CDI than the total SA credit market does. This might be because women have less exposure in the credit market and thus have more manageable monthly debt commitments to keep, but it also might point towards them putting a higher priority on meeting their debt obligations.”