The average personal loan amount in South Africa right now – and how much people owe on their clothing accounts
New data from TransUnion shows the average loan size in South Africa – how much money people are borrowing from various banks for personal use during the current Covid-19 pandemic.
The results are contained in the credit reporting agency’s latest South African Industry Insights Report (IIR) for the first quarter of 2021.
According to TransUnion, personal bank loan origins continue to decline; however, balances increased significantly, primarily due to an increase in both new loan amounts and the average balance per account.
The pace of the resumption of origination growth for bank personal loans has remained slow since the start of the pandemic, he said. Origination volumes have remained more than a third lower than the previous year over the past three quarters, falling 34% year-on-year in the fourth quarter of 2020.
“The average loan originator amount increased significantly by 22.1% year-on-year, indicating that personal bank lenders continue to approach the market cautiously and extend new loans to low-risk borrowers. As such, the rate of growth in the balance has accelerated considerably during the last quarter, ”the group said.
Average balances increased 20.3% and total credit limits increased significantly by 16.7%, pushing total outstanding balances to increase 12.7% year-on-year.
In tough economic times, consumers often use personal loans as a source of cash to help pay other bills and finance their daily expenses, TransUnion said.
Severe default rates, he said, declined slightly for personal bank loans year-over-year in the first quarter of 2021, marking the fourth consecutive quarter of deterioration. The continued deterioration in defaults reflects the impact of the pandemic and, more recently, the end of deferral programs for many borrowers, TransUnion said.
Personal loan – non-bank
Origination growth is showing signs of recovery as lenders are increasingly willing to extend credit to new borrowers, TransUnion said. Credit defaults worsened significantly for the third quarter in a row, as borrowers of non-bank personal loans continued to face financial hardship as a result of the pandemic.
While non-bank personal loan arrangements were still down significantly over one year (-17.9%), the rate of decline was lower than in previous quarters (-51.1% over one year in the second quarter of 2020 and -24.0% in the third quarter of 2020).
“Non-bank lenders appear to be more open to new credit than their banking counterparts due to a higher risk appetite,” the group said.
“Personal loans in general are considered consumer credit products and since no future utility exists for these products, delinquency rates tend to be higher.
“While bank and non-bank personal loans recorded an increase in delinquencies, it was much more pronounced for non-bank unsecured personal loans. This trend predates Covid-19, but has been amplified by the impact of the pandemic. “
The increase in non-bank personal loan default rates is to be expected, he noted, given the typical risk profile of clients served by this group. Often they are more at risk and therefore more sensitive to income shocks.
Non-bank lenders have very different business and risk models than more traditional banks, and their loan pricing and risk management practices attest to this. “It is, however, important that these trends are carefully monitored and complemented with proactive mitigation strategies,” said TransUnion.
Clothing account data
According to TransUnion, borrowers of clothing accounts are deleveraging amid continued financial stress. Lenders remain cautious in granting new credit amid strained consumer finances and persistent upward trends in delinquency.
The total number of clothing accounts fell 10.7% year-on-year in the first quarter of 2021, marking the third consecutive month of declining accounts.
“Clothing account borrowers appear to be deleveraging as balances continue to decline, with the first quarter of 2021 being the fourth quarter in a row with a declining balance – down 9.9% year-on-year.
“Consumer and lender appetite for new credit has remained low, creations – a measure of new accounts opened that is a function of both supply and demand – continue to decline,” said TransUnion. The first quarter of 2019 was the last quarter to show positive origination growth.
“This cautious approach is probably motivated by the significant increase in the percentage of severely overdue accounts which increased by 370 bps, from 30.9% in the first quarter of 2020 to 34.5% in the first quarter of 2021”, said the credit agency.
This downward trend in delinquency has persisted since early 2019 and its magnitude has increased since the second quarter of 2020, when the impact of the pandemic was felt most. “This indicates that clothing account borrowers are under significant financial pressure and that lenders need a preemptive analytical approach to identify and assist their clients,” he said.
Read: Business Talk – In conversation with Dries Zietsman from TransUnion