The average credit card debt in South Africa: how much we owe

New data from consumer credit reporting agency TransUnion shows credit disposals continue to rebound amid a difficult economic climate in South Africa.

New lending activity has grown, despite general consumer sentiment indicating a reduction in spending. Credit card collection volumes, the measure for new accounts opened, increased by 37.9% year-on-year in the first quarter, in stark contrast to the 42.7% year-on-year decrease in origins observed in the same quarter. moment in 2021, the group said.

The volume of credit card originations has grown steadily from its low in the third quarter of 2020, indicative of greater propensity for growth by lenders and increased demand for credit from consumers, TransUnion said.

“However, despite the resumption of card originations, current volumes remain below pre-pandemic levels.”

Age-wise, 74% of all card originations were from Gen Z and Millennial consumers, indicating greater demand for credit from younger consumers and willingness by lenders to grant credit to these borrowers .

From a risk distribution perspective, consumers with credit scores below 656 (sub prime) were responsible for 66.1% of all originations in the quarter. Gen Z (born in 1995-2010) and Millennials (born in 1980-1994) represented 64% of the new businesses.

This is in line with the risk view, as younger consumers are often associated with low credit scores that reflect higher risk, TransUnion said.

Average new lines of credit decreased by 5.2% yoy, potentially due to higher volumes of funding from under-prime borrowers. Account abandonment remains a concern, as does the total number of assets
accounts fell 2.3% year-on-year.

Outstanding balances are down 3.8% year-on-year, mainly due to six consecutive quarters of new negative business volumes between the first quarter of 2020 and the second quarter of 2021.

Volumes of existing accounts continue to decline and new businesses in recent quarters have sprung up at lower limits, the credit specialist said.

The severe account-level default rate for credit cards ended Q2 2022 at 12.9%, down 80bps from the previous quarter but remains 70bps above the same
fourth in the last year, it was said.

The average line of credit per account is R36,800, while the average balance per account is R21,200.

Personal loan: bank

Bank personal loan disbursements improved for the fourth consecutive quarter, driven mainly by younger borrowers, but remain well below pre-pandemic levels; however, the opening balances for new loans are substantially higher than the previous year, TransUnion said.

The pace of recovery in origination growth for personal bank loans continues for the fourth consecutive quarter. Origination volumes increased 6.8% year on year, to 908,000 in the first quarter of 2022. At current levels, origination volumes remain 23.4% below pre-pandemic levels.

Average funding amounts increased substantially by 14.7% year-on-year “indicating that although lenders have increased their appetite for new business, they remain cautious in granting new credit to low-risk borrowers.”

Younger consumers led origin growth, with Gen Z and Millennial breeders accounting for 62.5% of all new card accounts, up 0.8% from the previous year.

“The need for personal loan products may continue to grow due to the grueling macroeconomic environment consumers find themselves in, as these products provide borrowers with an additional source of liquidity to assist with day-to-day expenses.”

Personal loan: non-bank

Origination volumes continued to recover, posting growth for the fourth consecutive quarter and closing the gap at pre-pandemic single-digit levels. Opening balances on new loans were also significantly higher than the previous year, the data showed.

Non-bank personal loan disbursements increased 2.4% year-on-year, to 2.8 million at the end of Q1 2022. At current volumes, disbursements are 5% below pre-pandemic levels (Q1 2020 ).

At current volumes, originations are 5% below pre-pandemic levels (Q1 2020). Origination growth was driven primarily by younger, riskier consumers, with 52% of new business brought in by Gen Z and Millennial borrowers, TransUnion said.

From a risk standpoint, subprime and near prime borrowers accounted for 82.6% of new orders, up 0.4% over the previous year.

Increases in new loan amounts were observed across the risk spectrum, with the most significant year-over-year increase observed for Super Prime consumers. The average new loan amount of R6,300 increased significantly compared to the previous year (+ 21.5% yoy).

“The substantial increase in new loan amounts reflects the economic times consumers are in. With record inflation, consumers increasingly need additional liquidity to
cope with the rising cost of living “.

Read: How much money the average South African owes for their car and home right now