TransUnion has released the latest South African Consumer Credit Index (CCI) report, which shows a decline in the index to 51.2 in the third quarter of 2015, down from a revised 53.6 in the second quarter. New account defaults and distressed borrowing levels have seen a marginal increase, although both indicators were relatively neutral and do not show either materially worsening or improving credit behaviour.
The CCI is a unique indicator of consumer credit health measuring the ability of consumers to service existing credit obligations within the constraints of their monthly household budget. It is based on a 100-point scale, where 50.0 is the break-even level between improvement and deterioration of credit health.
Rate of decline in defaults has slowed
According to the TransUnion payment profile database, by February 2015 new consumer loan defaults (accounts three months in arrears) were declining by 8.3% year on year, meaning that there were fewer new defaults occurring. In the second quarter of 2015, the rate of decline was 5.0% and by the end of Q3 2015, the rate of this decline had slowed to just 1.6% year on year. While there are still fewer people defaulting on their accounts than in previous years, the rate of improvement has slowed significantly and indicates that the pressure on consumers’ credit health is starting to increase.
Revolving credit usage remains stable
The TransUnion distressed borrowing indicator deteriorated marginally in the third quarter, with more people resorting to borrowing money in order to pay off debt or general expenses. Distressed borrowing shows the amount of revolving credit such as credit cards and store cards used by consumers as a percentage of their overall credit limit. The index shows a marginal increase in distressed borrowing of 0.8% when comparing the figures to Q3 2014. Despite marginally more distress in the 3rd quarter, the overall trend still shows improvement, and the figures from the second and third quarters of 2015 suggest neither significant improvement nor worsening in financial distress.
On-going household cash flow strain
The household cash flow index weakened in the 3rd quarter, although the decline too was marginal and cash flow remains better than during 2014. Lower rates of inflation on essential purchases (non-discretionary items) have contributed to this trend. In 2015 so far, non-discretionary inflation has averaged 3.8% year on year, while from 2011 to 2014 it averaged 5.8% year on year. The South African Reserve Bank (SARB) raised the benchmark repo rate from 5.75% to 6.00% during the 3rd quarter, which has resulted in debt service costs increasing slightly.
About the CCI
Released on a quarterly basis to the public, the TransUnion CCI measures aggregate consumer loan repayment records; tracks the use of revolving consumer credit facilities as an indicator of distressed borrowing; estimates household cash flow as a means of determining financial pressure/relief; and quantifies the relative cost of servicing outstanding debt. These aspects are then combined into a single numeric score of consumer credit health. The index is compiled by the TransUnion Credit Bureau with technical support from market intelligence firm ETM Analytics.
TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key, publically available macroeconomic variables impacting household finances. Unlike other indices in the market, the CCI is driven by objective market data rather than consumer surveys or questionnaire responses.
Analysis suggests that the CCI may be a good leading indicator for business activity in certain economic sectors, particularly those more closely related to consumer spending. A full report on the quarterly TransUnion CCI can be found on www.transunion.co.za.