Credit reporting agency TransUnion has published its Consumer Credit Trends report for 2020, detailing how the country’s coronavirus lockdown has impacted the finances of the average South African citizen.
With a fall in GDP and the associated rise in unemployment, consumers have had to prioritise their personal finances to cope with the dramatic effects of the pandemic, TransUnion said.
“As the crisis progressed, the number of consumers seeking credit—observed by the volume of enquiries—plunged during Q2 2020.
“This may have been driven by a combination of reduced access to branches and stores during the lockdown, and uncertainty around employment and the implications of the lockdown causing consumers to defer taking on new debt.”
TransUnion said that the drop in enquiries is also symptomatic of the fall in consumer confidence, especially in the short-term, resulting from the difficult conditions arising from a global pandemic.
This fall in consumer sentiment is also evidenced in the latest figures from the Bureau for Economic Research which recorded a significant decline in consumer confidence in Q2 2020, the group said.
TransUnion found that the average South African owes R18,292 on their credit card account, while the average credit line (the amount of credit a person may borrow from) is R34,703.
The group’s data shows that credit card balances grew by only 2% year-on-year – likely driven in part by the continued slow-down in originations (new cards) which has been evident since Q3 2019.
“While the decline in originations for the latest quarter is significant at 12.2%, this does give an indication on what to expect next quarter,” the group said.
To better understand consumer demand during the pandemic, it is important to observe enquiries as a measure of new applications. Enquiries for credit cards declined by more than half the volumes reported in the prior year (-62%), it said.
It added that average credit lines continued to increase significantly in Q2 2020, by 10% YoY; as did average new account credit line at 22.9% YoY.
TransUnion said that the increase in balances and credit lines is stimulated by two factors:
The need for consumers to increase credit usage as a means to finance day-to-day expenses as the pandemic continues to take its toll on personal finances;
The impact of payment financial accommodations such as deferrals and payment holidays which has contributed to the increase in balances, with interest continuing to accrue as repayments have been put on hold.