New data from consumer credit reporting agency TransUnion shows that credit production continues to rise amid a challenging economic environment in South Africa.
New lending activity grew despite general consumer confidence pointing to spending cuts. Credit card production volumes — the benchmark for new account opening — grew 37.9% year-on-year in the first quarter, in stark contrast to the 42.7% year-on-year decline in production at the same point in 2021, the group said.
Credit card production volume has grown steadily since its low in Q3 2020, indicating increased appetite for growth from lenders and increased consumer demand for credit, TransUnion said.
“However, despite the revival in card production, current volumes remain below pre-pandemic levels.”
From an age perspective, 74% of all cards came from Generation Z consumers and millennials, indicating greater demand for credit from younger consumers and a willingness of lenders to extend credit to these borrowers.
From a risk allocation perspective, consumers with credit scores below 656 (below prime) accounted for 66.1% of all originations for the quarter. Gen Z (born 1995-2010) and millennials (born 1980-1994) accounted for 64% of new businesses.
This aligns with the risk view, as younger consumers are often associated with low credit scores that reflect higher risk, TransUnion said.
Average new lines of credit declined 5.2% year-over-year, possibly due to higher origination volumes from below-first borrowers. Account churn remains a concern as the total number of active
bills were down 2.3% year on year.
Outstanding balances declined by 3.8% year-on-year, mainly as a result of six consecutive quarters of negative new production volumes between Q1 2020 and Q2 2021.
Existing account volumes continue to decline and new businesses have emerged at lower limits in recent quarters, the credit specialist said.
The severe credit card default rate ended the second quarter of 2022 at 12.9%, down 80 bps from the previous quarter, but remains 70 bps higher than the same
quarter of last year, it said.
The average credit limit per account is R36,800 while the average balance per account is R21,200.
Personal loan — Bank
Personal bank loan production improved for the fourth consecutive quarter, mainly due to younger borrowers, but remains well below pre-pandemic levels; however, opening balances for new loans are significantly higher than the previous year, TransUnion said.
The pace of the recovery in personal bank production growth continues for the fourth consecutive quarter. Production volumes increased 6.8% year-over-year to 908K in Q1 2022. At current levels, production volumes remain 23.4% below pre-pandemic levels.
Average origination amounts increased significantly by 14.7% yoy,” indicating that while lenders have increased their interest in new business, they remain cautious by extending new credit to lower-risk borrowers.”
Younger consumers fueled origination growth, with Gen Z and millennial brethren accounting for 62.5% of all new card accounts, up 0.8% from the previous year.
“The need for personal loan products may continue to grow due to the strenuous macroeconomic environment consumers find themselves in, as these products provide borrowers with an additional source of liquidity to help handle day-to-day expenses.”
Production volumes continued to recover, with growth for the fourth consecutive quarter closing the gap from pre-pandemic levels to single digits. Opening balances on new loans were also significantly higher than in the previous year, the data showed.
Production of non-bank personal loans increased by 2.4% year-on-year to 2.8 million at the end of the first quarter of 2022. At current volumes, the number of new loans is 5% below pre-pandemic levels (Q1 2020).
At current volumes, production is 5% below pre-pandemic levels (Q1 2020). Manufacturing growth was primarily driven by younger and riskier consumers, with 52% of new revenue contributed by Gen Z and millennial borrowers, TransUnion said.
From a risk perspective, Subprime and Near Prime borrowers accounted for 82.6% of new business, up 0.4% from the previous year.
Increases in new loan amounts were seen across the risk spectrum, with the largest year-over-year increase seen for Super Prime consumers. The average new loan amount of R6,300 has increased significantly from the previous year (an increase of 21.5% year-on-year).
“The substantial increase in new loan amounts reflects the economic times in which consumers find themselves. With record high inflation, consumers are increasingly in need of extra liquidity to
to meet the rising cost of living.”
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