South African consumers remain under financial pressure.
This is according to the Experian Consumer Default Index (CDI), produced on a quarterly basis, which shows a deteriorating trend when compared to the prior year.
The CDI deteriorated at both a Composite level as well as across all individual credit products. The Q3 CDI showed a Y-o-Y decrease of 4% overall, moving from 3.53 in September 2021 up to 3.66 in September 2022.
“This movement suggests that the CDI has now returned to its former trajectory of long-term deterioration,” says Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian Africa. “This return to the former trend, although expected, has to some extent been expedited by the rapid increase in living expenses experienced by South African consumers across the board.
“During this unpredictable financial environment, consumers are encouraged to build a budget that will provide a layout of what their financial situation will look like post-credit repayment. In order to navigate the current environment, consumers are advised to focus on developing positive, lifelong financial habits that will see them through volatile times. This includes understanding one’s credit report and as well as the behaviours that may impact one’s credit score,” he advises.
Consumer default performance by product type
From a product perspective, the worst relative deterioration was seen for Retail Loans, where Experian saw a YoY deterioration from 10.69 in September 2021 to 12.76 in September 2022.
However, it is important to note that the Retail Loan CDI is more volatile than the other products reported, partly due to the nature of the product, but also due to the more balanced representation across consumer segments – particularly regarding the representation of lower affluence groups.
Qualification for credit is still not back to pre-Covid levels and Personal and Retail Loan volumes still have some way to go in returning to former levels.
Consumer default performance by Financial Affluent Segments (FAS)
Q3 2022 continued to show that the most affluent consumers remain under more financial strain (relatively speaking) than their less affluent counterparts with FAS Group 1 (Luxury Living) showing a Y-Y deterioration in CDI of 16%.
Interestingly, FAS Groups 5 (Laboured Living) and 6 (Yearning Youth), the least affluent consumer segments – also showed a significant deterioration in CDI YoY, after the improving trend that followed in the two years after the initial Covid lockdown conditions.
The credit consumer within the greater context of the South African economy
“Although there has been a temporary slowing in the rate of increase in CPI and fuel costs, the cost of living remains on an upward trend,” Van Jaarsveldt says. “Market appetite for credit remains very high as consumers look to credit to help bridge the gap in covering living expenses.
“The increased cost of living also leads to decreased consumer affordability, which gives rise to low approval rates of credit applicants on the one hand, and increased inability of consumers to meet debt obligations on the other.
“Both consumers and businesses need to exercise caution. For consumers, using credit loans to supplement monthly cash flows could result in a debt cycle as payback obligations rise. Lenders should effectively leverage data and insights in order to conduct accurate affordability evaluations and predict future changes across all consumer categories,” he concludes.