“I think there’s a lack of understanding on what the cost of credit is. I think there’s a problem with consumers using credit to buy discretionary products – jeans, T.Vs or other things. There’s a number of factors that have really contributed to the problem state we’re at now,” TransUnion’s CEO, Geoff Miller told CNBC Africa.
“When a consumer applies at a bank, the bank comes to us to assess that consumer’s credit risk. We did some surveys with consumers, we asked them what their interest rate was and not a single consumer could tell us. They could all tell us what their repayment was.”
According to TransUnion, cash flow in the country’s households is deteriorating as living costs rise, and a weak job market takes its toll on income security.
The credit and information management company has said that South Africa’s Consumer Credit Index stands at 43.4, a sharp decline from previous years.
“Anything below 50 means consumer credit health is declining in South Africa, above 50 means it’s improving. What we’re really finding is that this is a fourth straight quarter of a declining index,” Miller indicated.
“We’re really seeing two things: credit defaults going up so consumers are not able to meet their obligations to credit providers, it’s up 13 per cent year over year. The second is inflationary pressures fuel other things squeezing the consumers wallet. The economy as a whole isn’t growing very quickly.”
It also found that the household cash flow situation may be as challenging as it was in early 2009. This of course was a recession year.
Miller however emphasised that lending institutions have started tightening their credit policies and standards.
“Their current vintage performance is much better than the loans that they wrote 12 months ago, two years ago, so they’re still having problems with their back book but their current vintages are performing much better,” he explained.
“We’re still seeing double digit growth year over year – that means that consumers are still extremely credit hungry but when we look at the number of accounts that are opened, that numbers coming down. What we are seeing is that lenders are being much more strict around who they’re granting credit to.”