New data from consumer credit reporting agency, TransUnion shows that South Africa’s vehicle finance and home loan markets are both showing signs of recovery amid improved delinquency rates.
The findings of TransUnion’s Q2 2021 South Africa Industry Insights Report covers a period where unemployment was still rising, but prior to July’s civil unrest and peak in the third wave of Covid-19 cases.
The report shows that a number of the trends, seen immediately after the outbreak of Covid-19 more than a year ago, have continued to advance with some notable exceptions, especially when looking at delinquencies, the group said.
Although the overall number of consumers participating in the credit market has not materially grown compared to pre-pandemic levels (falling year-on-year (YoY) in three of the last four quarters and remaining broadly flat YoY in Q2 2021, at 0.8%), the total amount borrowed as measured by outstanding balances has continued to increase for all major consumer credit products.
“However, as seen in previous quarters, this is often for very different reasons depending on the product. Home loans recorded a 15.3% increase in outstanding balances YoY in Q2 2021. This was primarily driven by consumers who have maintained or improved their income and credit access and hence have been able to finance house purchases, with rising home prices contributing to higher new home loan balances,” TransUnion said.
In contrast, outstanding balances for credit cards (up 10.6% YoY) have been driven by consumers’ need to balance household budgets, maintain liquidity, and finance subsistence purchases, especially where incomes have been negatively impacted.
In recent quarters, a general rise in delinquencies across most major consumer lending categories had also contributed to growth in outstanding balances, as missed payments accrued and principal amounts remained
outstanding.
However, in the latest quarter, with the exception of personal loans, delinquencies stabilised and decreased. Credit card balance-level delinquencies were down 50 basis points (bps) from their peak in Q2 2020, and in Q2 2021 stood at 12.3%, and were at the same level as Q2 2019.
Carmen Williams, director of research and consulting for TransUnion South Africa, said: “Consumer credit market conditions remain volatile and are an evolving picture. Any potential impact from the recent civil unrest and spike in Covid-19 cases won’t be seen until Q3 data are published, but in Q2 there were some noticeable improvements – especially in delinquencies. Whether this improvement can be sustained is yet to be seen and warrants close monitoring in the coming months.”
Vehicle Finance
The vehicle finance market is showing signs of recovery as the rate of originations growth returns to pre-pandemic levels, balances increased and delinquency rates improved, said TransUnion.
Origination volumes dropped by only 3.9% YoY in Q1 2021 which is comparative to the YoY change observed in Q1 2020: -4.8% as new vehicle loan volumes return to pre-pandemic levels. New loan amounts increased by 10.8% indicating that consumers are purchasing higher-priced vehicles.
As such, overall outstanding vehicle finance balances increased by 8.6% YoY in Q2 2021.
“Refinancing options, low interest rates, renewed purchasing activity in the latest quarter, and a shift towards higher-priced vehicles have all contributed to this increase.
“Account-level serious delinquency rates remained flat at 7.3% in Q2 2021. This stability could be as a result of a combination of factors: better portfolio management from lenders, consumers prioritising vehicle loan payments relative to other products for convenience and safety (especially given that local travel has opened up) or it could be that after several years of acceleration, delinquencies have now normalised.”
Home Loan
The home loan market shows sustained signs of recovery as balance growth ticked up substantially and delinquencies improved, said TransUnion.
Home loan volumes have rebounded since the onset of the pandemic (down by only 6.2% YoY). Home loans recorded a 15.3% increase in outstanding balances YoY in Q2 2021.
This was primarily driven by consumers who have maintained or improved their income and credit access and hence have been able to finance house purchases, with rising home prices contributing to higher new home loan amounts (up by 44.0% YoY), said the credit reporting agency.
Account-level serious delinquency rates (3+ MIA) improved for the first time in two years, down by 260 bp YoY to 5.1% in Q2 2021. This is likely driven by the fact that home loan lenders have shifted risk appetite toward lower-risk consumers. Compared to the same quarter last year where 67% of originations were to prime and above borrowers, in Q1 2021, this proportion increased to 76%.
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