That’s the average personal loan amount in South Africa right now – as banks tighten

New data from TransUnion shows the average loan size in South Africa – how much the country’s citizens borrow from the bank for personal use – based on figures from the fourth quarter of last year.

The results are contained in a credit bureau’s Q4 2020 South Africa Industry Insights report. They show that personal bank loan origins continue to decline while balances increase moderately, mainly due to an increase in the average loan amount on new accounts.

The trend of improving delinquency seen between the second quarter of 2019 and the first quarter of 2020 has reversed as economic conditions wreak havoc on consumers, TransUnion said.

This latest analysis covers a period when unemployment in South Africa hit a new high and GDP fell. Over the last period, inquiries — a measure of consumer demand — and fixtures — a function of both supply and demand — have both fallen across all major credit categories. the consumption.

At the same time, delinquencies continued to climb for most products with the exception of credit cards which saw a slight improvement. The increase in missed payments also contributed, in part, to an increase in overdue balances in most product categories, the credit union said.

When lenders come up with new credit card accounts, analysis suggests they focus on lower risk consumers with higher credit scores. Issuers are extremely cautious, especially when granting new credit cards.

Carmen Williams, Director of Research and Advisory for TransUnion South Africa, said: “Tough economic conditions mean household finances remain strained, and consumers and lenders continue to take a cautious approach to credit as a result. Like many other markets around the world, consumers face tough decisions about which debt to prioritize.

“While the annual trends indicate a tough credit market, when we measured the last few quarters, we see a path to recovery. However, there is still significant uncertainty regarding the deployment of the vaccine, the general easing of restrictions and the rebound in macroeconomic conditions, and as such, it is too early to expect a sustained recovery in key credit indicators. . “

Despite the relaxation of containment measures, creations continue to decline but at a slower pace. Balances increased modestly and delinquencies continued to deteriorate rapidly.

Personal loan — Bank

Personal bank loan arrangements, although still down significantly over one year (-39.6%), fell at a slower pace than in the previous quarter (-60.9% over one year in Q2 2020). Although this product category relies heavily on people walking through the door, origination growth has remained weak despite the easing of foreclosure restrictions in the last quarter, TransUnion said.

Personal bank lenders continued to approach the market with caution as the criteria for granting credit tightened, he noted.

“The growth rate of the balance has remained fairly constant over the past year, with the latest quarter increasing 5.9% year-on-year, down slightly from the previous quarter (8.7% in the third quarter of 2020) . Part of this growth comes from origins.

The office said that although origination volumes were down substantially, nearly 800,000 new accounts were booked during the quarter and the average loan amount for these bookings increased 16.9% year-on-year, pushing total average balances to increase 12.2% year-on-year.

“Another driver of this growth in balances is the fact that in some cases personal bank loans were used as a payment holiday mechanism where loan balances are increased to provide liquidity. This leverage helps some consumers avoid delinquency and at the same time increases overall outstanding balances, ”he said.

Severe default rates deteriorated for personal bank loans year on year in the fourth quarter of 2020 (up 130bp to 22.4%), marking the third consecutive quarter of deterioration, according to office data.

“As consumers grapple with stretching their finances, it is likely that unsecured products such as personal loans and some retail accounts that have no future use fall lower on the list. payment priorities over revolving products like credit cards that do. “

Personal loan — Non-bank

As for bank personal loans, while non-bank personal loan arrangements were still down significantly over one year (-24.0%), the rate of decline was slower compared to the previous one.
quarter (-51.1% YoY in Q2 2020).

After three consecutive quarters of strong growth, in the second quarter of 2020, non-bank personal loan origination fell 51.1% as expected as many vendors primarily in the retail space were hit by the restrictions on Covid-19 level five and four lockdown with stores closing as with most of the industry physical access is required to apply for new credit.

Despite the easing of these restrictions, mountings remain considerably weaker than expected, possibly due to a cautious attitude by lenders as defaults continue to deteriorate rapidly.

Non-bank personal loan delinquencies have been worsening since 2016, up 640 bps year-on-year to 32.5% in the fourth quarter of 2020. Non-bank personal loans tend to focus on higher risk borrowers. As such, a larger increase in defaults is to be expected, as financial hardship will have a proportionately larger impact among financially strained consumer groups.

“Consumers’ payment priorities are increasingly set as we navigate the current crisis. Lenders must constantly monitor and adjust their underwriting criteria and
Portfolio risk management strategies in order to cope with increasingly difficult household finances, ”said Williams.

Read: How You Can Improve Your Credit Score and Why It’s Important

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