Al­though South Africans seem to be do­ing well in terms of pay­ing off their debt, house­hold cash flow is still in­cred­i­bly tight, writes

CityPress - - Business -

Al­though bud­gets con­tinue to be tight for South Africans, the ma­jor­ity of con­sumers ap­pear to be at­tempt­ing to take their debt in hand, with a slight im­prove­ment in credit health. Ac­cord­ing to the lat­est Tran­sUnion SA Con­sumer Credit In­dex, which fo­cuses on the third quar­ter of this year, the re­pay­ment be­hav­iour of con­sumers im­proved to some de­gree but, over­all, house­holds re­main un­der fi­nan­cial strain.

Tran­sUnion SA CEO Ge­off Miller says that one of the likely rea­sons for the slight im­prove­ment in con­sumer health is that lenders have be­come more cau­tious in re­cent years, show­ing more pru­dence with a greater de­gree of built-in mar­ket checks and bal­ances than ex­isted dur­ing the last ma­jor credit cy­cle from 2004 to 2012.

The num­ber of new ac­counts in de­fault or three months in ar­rears fell by 2.4% year on year, which means that fewer con­sumers are fall­ing be­hind on their debt re­pay­ments. How­ever, de­spite this en­cour­ag­ing sign, house­hold cash flow weak­ened fur­ther, de­creas­ing by 0.6% year on year.

Miller says that the use of credit cards has now been hov­er­ing at around 51% since early 2014.

“This sta­bil­i­sa­tion doesn’t im­ply zero growth in re­volv­ing credit, only that house­holds are not [on aver­age] us­ing more of their credit lim­its,” he says, and adds that house­hold cash flow is at its weak­est level since 2009.

Weak house­hold cash flow could be ex­pected to cause ac­cel­er­at­ing de­faults and dis­tressed bor­row­ing. How­ever, Miller says this is mainly the case when bor­row­ing has been rapid and then cash flow de­te­ri­o­rates quickly, as hap­pened in 2007/08. He says that, in the cur­rent cy­cle, there would need to be a deeper de­cline in house­hold cash flows be­fore con­sumers start de­fault­ing on debt re­pay­ments to a greater ex­tent.

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