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- Data from the NCR, TransUnion and Experian shows that banks are still lending less than they did before the pandemic.
- Home loans have driven most of the credit growth in SA.
- In other credit lines, lenders have been approving lower credit limits and rejecting a bulk of applications.
- For more stories, go to the News24 Business front page.
South African banks never fully opened their lending taps after the Covid-19 pandemic. And just as more consumers turn to debt to cope with the spiralling cost of living, lenders are tightening their appetite again.
According to one of the country's biggest credit bureaux, TransUnion, consumers were thirsty for credit to bridge the gap between their incomes and the rising cost of living. But while South Africans opened more credit accounts, lenders offered lower loan amounts and credit card limits. Even non-bank personal loans and clothing accounts weren't exempted.
The TransUnion industry insight report has a month lag on credit origination data. But it still paints a solid picture of how banks and other lenders responded to the increased appetite for credit. It shows that credit originations increased by 14.5% year-on-year in the second quarter. Credit card origination volumes saw the biggest increase at 39.4%, followed by clothing accounts (34.2%) and retail revolving credit facilities (30.8%).
However, while at face value, these loan origination volumes might lead one to believe that SA's credit market was a hive of activity, new accounts opened in all credit lines – save for home loans – remained notably below the 2019 levels.
For instance, card originations volumes were 18% below pre-pandemic levels. And even when one compares the current numbers to 2021 instead of 2019, the growth in new cards issued doesn't match the outstanding balances. Outstanding balances decreased by 2.2% year-on-year in the third quarter of 2022, indicating that while people might be getting new credit cards, lenders are giving them smaller credit limits than before.
TransUnion said the average limit granted by lenders on new cards issued in the second quarter of 2022 was 5.2% lower than in the same period last year. The limits are lower because there has been a spike in "riskier borrowers" applying for credit. Consumers with sub-prime credit scores accounted for 53% of new accounts opened.
TransUnion's report is in line with the National Credit Regulator's (NCR) latest Consumer Credit Market Report (CCMR). That report also provided data only up to the end of June. It showed that the total value of new credit granted in the country decreased by 1.13% from the first quarter to the end of the second quarter of this year, even though the number of new credit agreements between lenders and consumers increased. Vehicle loans recorded the biggest decrease quarter-to-quarter.
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Experian has also flagged this trend of increasing credit appetite amid a decrease in approvals.
"We've seen from the NCR's Consumer Credit Market Report that although the demand for credit continues to exceed even levels we saw pre-Covid-19, the approval rate of these applications remains really low at 33%. The high demand for credit is explained by the increased cost of living. Consumers are really [borrowing] to help them make ends meet," said Experian's head of data insights, Ans Gerber, during the presentation of the credit bureau's latest extended consumer default index report.
Gerber said credit appetite in the country has been above pre-pandemic levels since the fourth quarter of 2021. Like TransUnion, Experian also noted the increase in demand from consumers who don't qualify for credit.
On the other hand, consumers who aren't in a financial pickle are paying off their debts as interest rates rise. TransUnion said 38% of consumers it surveyed in the third quarter said they had paid down their debt faster over the past three months. This figure was more pronounced for younger consumers, with 44% of millennials paying their debts faster than scheduled. In addition, 42% of consumers plan to use money from their savings to service their debt obligations than risk falling behind.
