Responsible lending is crucial
According to stats recently released by Experian South Africa, consumer debt totalled R1.75-trillion at the end of 2019.
Secured debt in the form of home loans (R840bn) and vehicle loans (R426bn) accounted for R1.27-trillion (72.6%) of total consumer debt, while unsecured lending — which comprises credit cards, personal loans and retail store credit — amounted to R479bn (27.4%) of total consumer debt exposure. Personal loans in particular have shown strong growth over the past 18 months as consumer demand for cash continues to rise.
“Due to the tougher economic climate and record unemployment, more consumers are accessing personal loans and other available unsecured credit facilities to support day-to-day expenses,” says Jaco van Jaarsveldt, Head Innovation, Marketing Services and Consulting at Experian South Africa.
“What is concerning is that more consumers are struggling to repay these loans and facilities, resulting in increased default rates that negatively impact on their futures.”
Some positive news to emerge from Experian’s latest report relates to the improving trend in retail store card default rates observed over the past four quarters, which indicates that both consumers and retail lenders have adopted a more conservative approach.
“Retailers implemented prefestive season tightening in credit lending in 2018, which is now yielding results as overall industry default rates show marked improvements,” says Van Jaarsveldt.
“We expect consumers to remain under pressure financially in the coming months, which will result in continued high demand for unsecured lending products.
“However, we expect lenders in the unsecured loans market to review their lending criteria to manage the deteriorating portfolio performance, which could make access to credit more difficult in the coming months.”
Alfred Ramosedi, CEO of Bayport Financial Services, affirms that it is prudent for lenders to focus on credit quality, rather than grow their loan books in the current economic conditions.
“Lenders must ensure they offer credit responsibly to creditworthy consumers who can afford it. And in a more competitive marketplace, customer loyalty and consumer engagement will be key to success in this regard.”