South African Consumers Urged To Establish Sound Financial Habits To Get Through Tough Times

Consumers under increased financial pressure, according to latest Experian CDIx report

The Experian Consumer Default Index (CDI) showed a quarter-on-quarter (Q-o-Q) deterioration from 3.66 in September 2022 to 3.93 in December 2022, indicating that South African consumers remain under financial pressure.

This drastic short-term deterioration in the composite CDI is especially concerning when considering that Q4 typically signifies only the start of the seasonal deterioration in CDI, suggesting that we can expect the CDI to deteriorate further in the first quarter of 2023.

Year-on-Year (Y-o-Y), the composite CDI deteriorated from 3.52 to 3.93 – a relative deterioration of 11%.

According to Jaco van Jaarsveldt, Head of Commercial Strategy and Innovation at Experian Africa, said: “Last quarter, we reported that the September 2023 CDI results suggested a return to the pre-COVID trajectory of long-term deterioration. This quarter, the results seem to substantiate that outlook. Overall, this return to the former trend of long-term deterioration, although expected, has likely been expedited by the rapid increase in living expenses experienced by South African consumers.”

Of further concern, is the worse than expected GDP for Q4 2022 which saw a 1.3% contraction quarter-on-quarter during the period. Consensus forecasts among leading economists suggest a further contraction in Q1 2023, suggesting that the South African economy might be heading for a recession.

All the product-specific CDI metrics also deteriorated Y-o-Y; most notably, the Retail and Personal Loans portfolios. The worst relative deterioration in CDI was seen for Personal Loans, where we saw a Y-o-Y deterioration from 7.54 in December 2021 to 9.27 in December 2022.

From a market-exposure and credit-active population penetration perspective, Experian has noted that higher affluence consumers have become increasingly dependent on Personal Loans to bridge the gap in their monthly expenses.

Consumer default performance by Financial Affluent Segments (FAS)

2022 Q4 showed that deterioration in CDI terms was observed on the two extreme ends of the consumer landscape, i.e., the most affluent and the least affluent consumers. The biggest relative deterioration was seen for FAS Group 1 (Luxury Living). Although these consumers are typically highly affluent (and generally represent the lowest credit risk), their CDI has been under severe pressure, particularly since the pandemic.

The mid-affluence FAS Groups 3 (Stable Spender) and 4 (Money Conscious), the consumers of typically mid-range affluence, generally showed minor Y-o-Y change in Composite CDI.

For FAS Groups 5 (Laboured Living) and 6 (Yearning Youth), Experian has seen a sustained increased level of new business since the last quarter of 2021 – giving rise to increased CDI levels over the last nine months.

Consumers are looking to credit to cover cost-of-living expenses 

Although there has been a temporary slowing in CPI and fuel cost increases, the cost of living remains on an upward trend – particularly regarding food and non-alcoholic beverages.

The increased cost of living leads to decreased affordability of consumers and the likely increased inability of consumers to meet debt obligations.

According to data from the National Credit Regulator, the appetite for consumer credit soared to record levels in Q3 of 2022. Approval levels have, however, remained stable giving rise to a significant contraction of approval rates. Experian saw the consumer credit approval rate moving down from 33.3% in Q2 2022 to 30.5% in Q3 2023. This highlights the fact that consumers are turning to credit to make up for the shortfalls in their cost-of-living expenditures.

“We encourage South Africans to keep managing their budgets carefully, creating sound  financial practices to navigate this difficult economic climate. It is also important for consumers to monitor their credit usage carefully and routinely check their credit reports to make sure that they represent a true reflection of their credit history. Ongoing monitoring and where needed, corrective action, is critical to ensure a healthy credit profile is maintained,” concludes van Jaarsveldt.

You can get a free credit report from Experian – go to My Credit Check.