Economy takes its toll as car debt defaulters rise - index

Johannesburg - The number of first-time defaulters on car loans increased in the last quarter of 2017, as the lacklustre economy tightened its stranglehold on South Africans.

Yet it seems there was also a bit of breathing room as the overall number of first-time defaulters slowed.

Consumer credit reporting group Experian's Consumer Default Index (CDI) showed South African vehicle loans increased in first-time credit defaults in the last quarter of 2017.

The report showed South Africans had R1.52trn in total outstanding debt.

Simon Russell, managing director of Experian South Africa, said despite the larger vehicle improvements, “the near-term improvements in first-time credit defaults are, however, positive”.

The report provides a breakdown of consumer debt in South Africa, including which types of debt carry the highest risk in the country, and how much money is owed to lenders.

It measures 14.2 million consumers with credit card, personal loan, vehicle loan and home loan accounts. It also measures 17.9 million active account across credit card, personal loan, vehicle loan and home loan categories.

The latest report shows the rate of first-time defaulting debt balances slowed from 3.38% in December 2016 to 3.15% in December 2017, amounting to a total first-time default amount of R11.95bn during the period for October to December 2017.

The CDI represents the percentage of never-defaulted balances that have defaulted in the three-month period under review.

But while the overall rate of first-time credit defaults improved in the fourth quarter, vehicle loans recorded a CDI percentage of 3.11% for October to December 2017 with R2.9bn in first-time default over this period.

The North West, KwaZulu-Natal and Free State were impacted the most.

The report noted that the vehicle loan CDI for the fourth quarter of 2017 was significantly higher than the previous year’s CDI of 2.71%.

A breakdown of South Africa's debt and CDI, according to Experian

Each of the directories is also measured with Experian’s Mosaic system, which provides further insight into the dynamics faced by specific consumer segments and how they are dealing with unemployment, interest rate changes and economic growth.

Mosaic categorises the South African population and enumeration areas into 36 unique types and 9 overarching groups, enabling the company to analyse consumers’ choices, preferences and habits with the default data.

Hard working money

According to the report, the ‘Hard Working Money’ segment had the highest outstanding vehicle loan debt with a CDI of 2.56% for December 2017 compared to 2.26% in December 2016.

The ‘Hard Working Money’ group represents 2.83% of the South African population and they are predominantly between the ages of 35 and 49, educated and earn an annual household income of more than R150 000. They also typically live in suburbs around industrial and mining areas.

The ‘Single Room Landlords’, representing a young, employed type who rent out single rooms in highly populated areas, was the worst performing Mosaic type in the vehicle loan category.

The group’s CDI was 5.54%, worse than the CDI of 3.7% recorded in the last quarter of 2016.

Russell explained that while the recent increase in vehicle sales suggests the economy is reaching a turning point, the growth in first-time credit defaults is a cause for concern with vehicle loans becoming a riskier product class.

Home loans and credit cards

There were notable improvements across home loans and credit cards and more significantly for personal loans, which remained the worst performing product. The CDI for personal loans was 7.9% - with R4.7bn in first-time default value in the fourth quarter. This  was lower than the 8.11% in the same reporting period in 2016.

With R1.3bn in first-time default and a composite CDI of 7.31% in 2017’s last quarter, compared to the previous year’s 7.41%, ‘Indigent Township Families’ showed continued stress as a segment.

This group, Experian said, represents 3.86% of the South African population, predominantly aged 25 to 29; they have a limited education beyond grade 12 and an annual household income of less than R38 200.

‘Penniless Grant Transients', or young single or co-habiting couples reliant on social grants and living in one- or two-roomed informal dwellings, recorded the best year-on-year improvement on the CDI from 6.54% in December 2016 to 4.89% in December 2017, the report showed.

‘Minimum Wage Rural Families', or mixed age families on minimum wages living in small informal dwellings in the rural areas of the Northern Cape and the Free State, recorded the worst year-on-year deterioration from 5.3% in December 2016 to 5.92% in December 2017.

“The CDI certainly reflects the varying ways that South Africans are managing their debt under the circumstances," said the index.

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