Johannesburg, 17 May 2018 – While consumer debt stress levels improved during the first three months of 2018, vehicle loans remain a cause for concern as the first-time credit default rate for this product type rose to above average levels amongst many South African households in the first three months of 2018, according to the latest Experian Consumer Default Index (CDI)*.
The Experian CDI reached 3.24% in March 2018, a 0.28% year-on-year decline from the same period in the previous year. Over the period January 2018 to March 2018, the value outstanding for first-time credit defaults amounted to R12.4 billion.
“Though there has been a stabilisation of first-time credit default value and a slowdown in credit take-up and use, which contributed to the improvement over this period,” says David Coleman, Chief Data Officer at Experian SA. “Vehicle loans continue to pose a risk for many South African households.” While year-on-year improvements were observed across Personal Loans, Credit Card and Home Loans, Vehicle Finance was the only product type to show annual and monthly deteriorations. The Experian CDI for vehicle loans reached 3.55% in March 2018 which was significantly higher than the CDI of 2.95% in March 2017.
“Increased vehicle sales could have led to more loans for this product type being extended within a short period of time and contributed to this asset class’ riskier performance. As such, March represents the sixth consecutive month of increases for the Experian vehicle loan CDI,” says Coleman. He adds: “To put this further into perspective, the CDI for vehicle loans at 3.55% tracked higher than the overall CDI of 3.24%, indicating the extent of the defaults from this product type alone.”
Credit defaults vary amongst SA households
The impact of first-time credit defaults for vehicle loans is evident amongst South African households with different classifications.
Although ‘Hard Working Money’** had the highest outstanding vehicle loan debt. This segment of middle-aged educated families with mid to high income levels and residing in suburbs around industrial and mining areas recorded a vehicle finance CDI of 2.83% in March 2018 compared to 2.51% in March 2017.
Another significant movement in the overall CDI and for other product types was amongst the ‘Minimum Wage Rural Families’. This segment of mixed-age families on minimum wages living in small informal dwellings in the rural areas of the Northern Cape and the Free State, had the worst-performing overall CDI at 7.36% in March 2018, a deterioration from 7.42% in March 2017. This segment also had significantly the worst performance for the vehicle loan CDI at 7.54% in March 2018 compared to 6% in March 2017, as well as the worst performing for the credit card CDI of 10.28% in March 2018 from March 2017’s 8.03%.
Meanwhile ‘Secured Affluence’ consisting of mature, well-educated wealthy couples living in free-standing high-value established homes in city suburbs showed the lowest overall CDI of 1.74% in March 2018 compared to 2.02% in March 2017. This segment also fared well for other product types of vehicle loans (March 2018: 2.47% vs March 2018: 2.04%) and credit cards (March 2018: 3.94% vs March 2017: 4.51%).
‘Impoverished Grant Reliants’ consisting of families with children relying on government grants and living in rent-free informal dwellings in residential areas recorded the best year-on-year overall CDI improvement of 4.53% in March 2018 compared to 5.94% in March 2017.
“More South African households, particularly those in the rural parts of the country, are having to come to terms with their credit purchasing decisions over the December spending season with stress continuing to grow in the vehicle finance sector,” ends Coleman.
Notes to the editor:
*The Experian Consumer Default Index (CDI) is designed to measure rolling default behaviour of South African consumers with Home Loan, Vehicle Loan, Personal Loan and Credit Card accounts.
On a monthly basis, lenders typically classify their consumer accounts into one of several predetermined payment categories to reflect the level of arrears. When a lender deems the statement balance of a consumer account to be uncollectible due to being in arrears 90 or more days or statuses such as repossession, foreclosure, charge-off or write-off, the consumer account is said to be in default.
The index tracks the marginal default rate as it measures the sum of first-time
(accounts that have never) defaulted balances as a percentage of the total sum of
Published on a monthly basis with a 2 month lag, the CDI’s indices include a balance-weighted composite index as well as the 4 product specific sub-indices.
Each of the indices are also determined at Mosaic type level to provide further insight into the dynamics faced by specific consumer segments that are experiencing different stress due to macro forces such as unemployment, interest rate changes and economic growth.
**Experian Marketing Solutions’ Mosaic SA is a consumer lifestyle segmentation system that classifies the South African population and enumeration areas into 36 unique types and 9 overarching groups, providing a 360-degree view of consumers’ choices, preferences and habits.
Prepared by Meropa Communications on behalf of Experian SA
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