Credit reporting agency Transunion has released a new report showing that consumer demand for credit remains high, with outstanding balances increasing across all major credit categories when compared to the same period a year earlier.
The credit bureau said consumers are feeling the effects of weak global economic indicators, including rising unemployment and slow wage growth, putting pressure on consumers' personal finances.
"Consumers and lenders are struggling against continued and volatile economic conditions," said Carmen Williams, director of research and consulting at TransUnion South Africa.
"In the first quarter of the year, we saw a significant increase in the level of loans in unsecured credit products. We expect that, in part, this increase is due to the fact that consumers use credit to help make ends meet. In these tough economic times, credit can be an essential lifeline for consumers who may be struggling with their expenses. "
"For lenders, it is important that they continue to make credit available to consumers who may need it, but equally important that they make prudent lending decisions and manage the risks of their own credit portfolios. This balance is more difficult and more necessary in light of the current challenges facing the South African economy. "
Transunion pointed to an overall increase in total balances for most credit products compared to 1Q09, "which indicates that consumers are actively pursuing new credit and increasing the use of their existing credit lines as a way to complement their incomes and fulfill their commitments, "he said.
Rising default rates on most major credit products indicate that macroeconomic challenges have affected consumers and jeopardized their ability to meet their financial obligations, the company said.
Transunion found that the South African average should R16,481 on your credit card account, while the average credit line (the amount of credit a person can borrow) is R30,752.
The average number of credit card accounts per consumer increased marginally from 1.4 to 1.5 over the same period.
"This expanded access to credit can be beneficial to consumers if difficult economic conditions persist in the coming quarters, as credit cards can provide a necessary source of liquidity for resource-poor consumers," Transunion said.
"Overall, credit card balances increased 6.6% YoY in the first quarter of 2019. After a period of high growth in 2017 due to the emergence of a new issuer, the balance growth in 2018 stabilized. "
Account-level delinquency fell considerably in the first quarter of 2019 to 12.6% (-130 bp), while the default rate increased by 100 bp to 14%, the second increase year on year since the first quarter of 2017.
"This increase may be an indication that consumers are going through financial difficulties and are watching ahead, especially in light of the increased balance," Transunion told Reuters.
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