Times may appear tough, with troublesome politics and lacklustre economic growth but most consumers, judging by the extent to which they defaulted on their credit obligations, showed signs of improved credit health over the past year.
This is according to Experian, a credit reporting agency that quantifies credit defaults on mortgage, vehicle, personal loan or credit card accounts by consumers who have never previously defaulted.
Improvements were seen last year in most income groups and debt categories such as mortgages, personal loans and credit cards.
Experian says that lenders typically classify consumer accounts in terms of predetermined payment categories to reflect the level of arrears. When a lender deems the account to be in arrears for 90 or more days or marks it as a repossession, foreclosure, charge-off or write-off, the account is said to be in default.
The report covers 14.7‑million consumers with 18.4‑million active accounts and R1.53‑trillion in total outstanding debt.
The report, published in November, shows the overall default index improved from 3.78% in August 2016 to 3.44% in August 2017.
An improvement was observed in first-time defaults on personal loans, credit cards and home loans, but in this regard the vehicle finance index was flat for the year, Experian said.
It attributed the improvements to “the continuing tightened lending environment, as well as inflationary pressure relief and declining interest rates for consumers”.
Experian divides South African borrowers into nine overarching groups containing 36 categories.
The “wealth-to-do” group, for example, is made up of rich and educated individuals, with other groups including up-and-coming consumers, “young urban survivors”, state dependents and “outskirts families” such as residents in rural areas.
Experian’s default rates reflect the relative fortunes of these groups and categories. Overall credit card defaults, for example, improved from 7.2% in August 2016 to 6.75% in August 2017.
Those in the “secured affluence” category recorded the lowest rate of first-time defaults on credit card debt, but this rate was still higher than the previous year at 4.57%.
In contrast, a category Experian calls “indigent township families” — comprising low-income, mostly unemployed young families living in small properties or in shared housing — performed the worst, with credit card defaults at 11.87%.
“Though this segment had improved significantly on the 13.08% [it recorded] in August 2016, the deterioration on credit cards represents the worst [default] across products and segments,” says Experian.
These township families also fared poorly in repaying loans. Although personal loan defaults overall decreased from 9.27% to 8.42% during the year under review, the indigent category recorded an 11.52% default rate, up from the previous year’s 8.63%.
Thulebona Mhlanga is an Adamela Trust trainee financial reporter at the Mail & Guardian