Financially-constrained consumers in South Africa continued to use credit to meet their day-to-day living expenses in the three months to June, in spite of the elevated cost of borrowing.
TransUnion yesterday released the findings of its second quarter South Africa Industry Insights Report (IIR), which revealed South Africans increasingly used new and existing credit products to meet their rising consumption needs via credit cards, personal loans and retail revolving loans.
According to the IIR, the number of overall credit originations (a measure of new accounts opened) increased by 15.2%, as South Africans increasingly used new and existing credit products to meet their rising consumption needs.
Overall, the number of credit active consumers grew by 4.7% year-on-year to 18.5 million people, of which 28.1% hold credit cards.
TransUnion said this demonstrated that more South Africans have access to financial products and services to facilitate lifestyle essentials.
Originations for consumption-led products, facilities to pay for day-to-day expenses, accounted for 83% of all new credit opened, growing by 16.8% year-on-year in the second quarter.
The country’s credit market stood at an outstanding balance of R2.37 trillion, up 3.7% year-on-year, with total balances within consumption-led products up 5.1% compared to a year ago.
During the second quarter, Millennials (46%) and Gen Z (16%) together accounted for nearly two thirds (62%) of all new credit originations, with 60% of Gen Z originations issued among 26 to 29 years old, and one third issued to consumers aged 22-25 years.
According to TransUnion’s Q2 2024 Consumer Pulse Study, 91% of consumers believe that access to credit is important, with Gen Z consumers’ top three anticipated new credit products in the next 12 months being personal loans (35%), credit cards (26%) and student loans (25%) – all considered entry-level products.
Lee Naik, CEO of TransUnion Africa, said growth in new credit products issued and use of existing credit was typically driven by economic requirements as consumers take on credit to boost their available income during challenging economic times.
“However, there is hope on the horizon as inflation decreased during the quarter, with annual food price inflation at its lowest since late 2020,” Naik said.
“Consumers are likely to see further respite in the coming months, along with the reduction in interest rates; this combination will likely provide relief to stretched household budgets.”
Personal loan originations increased by 16.7% year-on-year during the second quarter, accounting for 77% of all new credit originations.
A deeper exploration over the past 12 months of originations shows that the vast majority of new personal loans were granted for amounts less than R5 000, comprising 75% of new loans granted during the period – an increase from 73% of loans during the same quarter of 2023.
During the second quarter, 3.2 million consumers opened new personal loans for R5 000 or less, compared to 1.9m consumers during the same quarter in 2023.
Credit card originations increased by 9.3% year-on-year, with Gen Z credit cardholders having grown by 22.7%.
Millennials and Gen X consumers contributed 72% of credit card originations, with below prime growth at 12%, compared to prime and above growth at 10% year-on-year.
Findings of a recent study of TransUnion’s South African credit card population showed that while credit card growth has primarily been driven by existing cardholders during the first quarter of 2023, the number of first-time credit cardholders was rising at a fast pace.
“Opportunity exists to enable greater access to financial inclusion by getting the first credit card into a consumer’s wallet,” Naik said.
“Our research shows that first-time cardholders are disciplined in managing their payments, as they focus on building their credit profile while accessing the opportunities made possible by having access to credit cards.”
Despite the sustained high interest rate during Q2 2024, mortgage originations continued to grow – by 16.2% year-on-year, and the average new loan amount increased by 1.7% to R940 675.
During the first half of 2023, 32% of mortgages were granted to sub-prime and near-prime consumers, and this ratio increased to 36% of mortgages being granted to below prime risk tiers during the first half of 2024.
Naik said the growth in mortgages in the affordable housing bracket and the increase in mortgages granted to below prime borrowers seem to highlight banks’ intent to support South Africans in their quest to own property.
“We also note that while there’s been growth in originations, the rate of growth has also increased substantially, which may in turn indicate increased homeowner confidence, supported by banks’ confidence in the country’s property market and in their risk strategies to accommodate more lenders,” Naik said.
“South Africans are managing their credit portfolios, despite the challenging economic environment during the second quarter of the year. Lenders would serve their customers well by offering comprehensive financial literacy programmes throughout the customer journey, and not just at origination.”
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