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- The number of new retail revolving accounts has surged by 35% in the first quarter of 2023, compared to a year before.
- A TransUnion report also found that existing account holders using their accounts more frequently.
- The demand for credit cards (+27%) and non-bank personal loans (+25%) has also soared.
- For more financial news, go to the News24 Business front page.
More South Africans are turning to store accounts to buy clothes and food on credit – while the demand for credit cards is soaring among young people, a new report shows.
Consumer credit report group TransUnion found that the number of new retail revolving accounts surged by 35% in the first quarter of 2023 compared to a year before, along with "significant" growth in clothing accounts.
"The trends indicate a shift from cash to credit purchases in response to ongoing economic pressures," the report states.
Existing account holders are also using more credit due to higher prices, says TransUnion Africa's financial services research and consulting director Weihan Sun.
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But lenders and retailers are shifting towards low-risk customers.
TransUnion said the number of "subprime" account originations declined by 5.4% over the past year. On the other hand, lower-risk consumers received higher limits when they applied for these credit products – which fuelled a 2.5% year-on-year increase in new account limits overall.
The demand for credit cards also continued across all generations, growing 27% year-on-year. Younger consumers – those roughly below the age of 40 – contributed to over two-thirds of new credit card originations.
Non-bank personal loans also saw significant growth, with volumes rising by nearly 25% year-on-year.
But TransUnion flagged a "concerning" 11% year-on-year increase in one-month overdue accounts on the credit card market. Non-bank personal loans also recorded a 170 basis points increase in serious account-level delinquencies (when the client falls behind monthly payments).
Across all credit products, however, delinquency rates improved in the first quarter of 2023.
One interesting trend in the first quarter was the expansion of the home loan market, despite the rising interest rates.
"Many of these purchases are led by the current semigration trend, supported by continued remote working strategies, with the most popular destinations being Gauteng, KwaZulu-Natal, and the Western Cape, with the North West being sought after too, thanks to more accessible property affordability," said Sun.
But the credit bureau flagged signs of potential strain on consumers' ability to repay loans. On home loans, accounts with a single month of missed payments increased by 25%.
It says lenders need to monitor that trend closely as rates rise to prevent the progression of this strain into serious defaults.
The report does not yet reflect the additional strain of two rate hikes of 50 basis points each, announced on 31 March and 26 May.
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Vehicle finance has already taken a big knock, with TransUnion recording a 6.8% decline in origination volumes compared to the first three months of 2022. That sector also saw an "alarming rise" in first-month defaults. TransUnion believes that vehicle and asset finance lenders will need more effective impairment management as interest rates continue rising.
