Consumer credit health dips in third quarter

CONSUMER credit health dipped in the third quarter from the second quarter, but remained above the breakeven 50 level, credit bureau Transunion says.

The consumer credit index (CCI) eased to 53.9 in the third quarter from 54.1 in the second quarter.

KwaZulu-Natal readers have become accustomed to receiving bad news about the economy, particularly since December 2015, but Transunion’s news shows that many households seem to be in better shape to weather economic storms than they were last year.

This is reflected in hard data such as real retail sales and new vehicle sales, which have been accelerating in the second half of the year after poor sales or declines in the first half of the year.

The CCI is a measure of overall credit health among South African borrowers, based on data gathered from some 54 million accounts and a revolving-credit value near R150 billion.

A rating of 50 is considered the breakeven point, with lower scores reflecting worsening credit health, which is characterised by an increase of new accounts in default (three months in arrears), as well as distressed borrowing (using one source of credit, say a credit card, to pay off another such as school fees or car loans).

The central theme in the report is that household debt is growing at a slower pace than household income.

The South African Reserve Bank (SARB) data shows household debt as a proportion of disposable income is declining, with the ratio easing to 72.6% in the second quarter of the year from 73.0% in the first quarter of the year and 83.0% in the first quarter of 2010.

Cash flow

In addition to reducing debt, household cash flow improved slightly in the third quarter with a 0.4% year-on-year (y/y) gain after being virtually unchanged in the second quarter.

Transunion noted that real income was struggling to improve materially. Household debt service costs declined by 5.2% y/y in the third quarter due to household deleveraging as well as a reduction in the prime lending rate due to the SARB repo rate cut in July.

Accounts in early default, that is three months in arrears, fell by 3% y/y in the third quarter, while distressed borrowing declined by 1.4% y/y.

The report cited that a relatively stable rand has been an immense help in cushioning South Africa’s perceived instability among international investors, though it acknowledged that political uncertainty and sovereign credit rating downgrades were risks that needed to be watched closely in the coming quarters.