Consumer credit index improves in third quarter

THE TRANSUNION SA Consumer Credit Index (CCI) improved to 54 points in the third quarter of this year from 50 points in the second quarter, and 49 points in the third quarter of 2018. The index measures consumer credit health, where 50 points is the break-even level between improvement and deterioration.

TransUnion said the recovery in the index could be attributed to declining new default rates, a continued decline in the rate of distressed borrowing, and low price inflation for essential consumer goods and services.

“We do not, however, regard the recent rise in the CCI as indicative yet of a strong recovery trend in consumer financial health. Macroeconomic conditions in South Africa remained challenging. Various business confidence indicators slumped further in the third quarter. Retail sales are still weak and consumer-facing companies on the JSE have seen their share prices falling significantly through the course of 2019,” TransUnion said.

The South African Reserve Bank said in its Financial Stability Review that the ratio of non-performing loans for household unsecured debt rose to 9.7 percent in August 2019 from 7.6 percent in January 2018, but remained well below the 12 percent level reached in 2015. This compared with a 3.5 percent ratio for secured debt in August 2019 from 2.9 percent in January 2018.

Statistics South Africa reported that real retail sales growth is slowing. Retail sales eased to only a 0.2 percent year-on-year (y/y) rise in September from a 2.4 percent y/y increase in June. Real retail sales have grown by only 1.3 percent y/y in the first nine months of this year compared with a 2.2 percent increase in 2018, and a 3.5 percent jump in 2017.

TransUnion said that accounts in early default (accounts three months in arrears), fell by 5 percent y/y in the third quarter after being roughly unchanged in the second quarter.

“TransUnion defaults data shows that defaults are not worsening despite the weak macroeconomic environment. Distressed borrowing, as reflected in revolving credit utilisation, continued to fall in the third quarter, declining by nearly 2 percent y/y. The gradual decline in revolving credit utilisation does not mean households are borrowing less, but is a result of fairly rapid increases in aggregate revolving credit limits. This may, however, indicate that banks are feeling more confident in household financial health,” TransUnion said.

It said household cash flow increased by 1.3 percent y/y in the third quarter due to declines in nondiscretionary household inflation. But the longer trend is that household cash flow has not improved since 2014.