New figures have been released which show that even before the COVID-19 pandemic, the shape of consumer borrowing in South Africa was changing.
The South Africa Industry Insights Report, which provides an overview of the South African credit market leading up to the time when the COVID-19 response measures were put in place, found that new accounts and total outstanding balances were up for all major consumer lending products. Within that, personal loans from banks overtook credit cards as the most widely held consumer credit product, while instant cash loans from non-bank providers such as Wonga also returned to growth.
Bank loans are on the rise
In the final quarter of 2019, the number of account originations, or more simply, new customers taking out personal bank loans, rose by 30.5 percent when compared to the same period last year. That represented the fourth quarter of uninterrupted growth, pushing bank loans to the top of the pile as the most widely held consumer credit product.
The figures showed that personal loans from non-bank providers were also on the up, as were delinquency rates, which rose for the ninth consecutive quarter to 26.1 percent. Delinquency rates refer to the percentage of loans that are past due, so figures that have risen so consistently are a clear sign that many South Africans are struggling.
A resurgence in non-bank personal loans
Although the number of new customers taking out bank loans grew by 30 percent year-on-year, that represents a cooling when compared to the annual growth seen earlier on in the year, which peaked at more than 50 percent. The reason for this cooling is a resurgence in the interest in non-bank personal loan products, which is being stoked by demand from consumers who do not qualify for bank loans.
The number of new originations in non-bank personal loans rose by 8.1 percent in the final quarter of 2019, with an increase of 31.6 percent year-on-year in total outstanding balances. Around two thirds (68 percent) of that balance growth came from existing lenders, while new market entrants accounted for nearly a third (32 percent).
The rapid growth of new entrants in the personal lending space is the result of South Africa’s burgeoning fintech sector. These lenders typically target younger consumers who tend to represent a higher risk, which is one reason why delinquency rates continue to rise.
Credit card providers shift to lower-risk consumers
Although credit cards were surpassed by personal bank loans as the most popular consumer credit product, this was expected given the conscious shift by credit card providers to serve lower-risk consumers. In fact, 94 percent of all new credit cards issued in the quarter were to above-prime consumers, with 57 percent of those classed as super-prime consumers.
Although this cautious and selective approach by the credit card providers saw new originations grow by just 1.8 percent year-on-year, the shift to lower risk customers led to an increase in the outstanding balances of new customers of 19.9 percent.