The Experian Data Insights Check-In brings you key insights based on the Q4 2022 Consumer Default Index.
Experian’s CDIx.
In this edition, we launch the CDIx or Consumer Default Index Expanded report which brings you the latest:
- Macroeconomic trends that have a direct bearing on consumers
- Market appetite for credit
- Qualification and take-up of credit (i.e. new credit)
- Performance of credit consumers (i.e. arrears/defaults and vintages)
Our analytics experts have extracted key highlights to give you a good understanding of the current trends we’re seeing in the market.
Short and to the point, these key trends leave you with enough information to start making better business decisions.
Get the Q4 2022 CDI Report for a more detailed view of the latest consumer default trends.
Download Full CDIx Report
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Experian Data Insights Check-In – Q4 2022 CDIx Key Insights
8-minute read
Consumer Price Inflation (CPI) has shown further easing over the course of the last quarter, moving down from 7.5 % in September 2022 to 7.2% in December 2022. Note that this does not mean that cost of living is easing, but rather that living costs are rising at a slower rate.
At 7.2% in December 2022, the CPI continues to exceed the SARB’s target band of 3% – 6% as it has done since May 2022.
One of the burning points in terms of Cost of Living, has been the costs associated with electricity – both from an Eskom tariff perspective as well as from an alternative electricity perspective (e.g., generators, solar).
Another key element that impacts on cost of living for all consumers, is the cost of food stuffs.
In fact, the price of food and non-alcoholic beverages (NAB) has increased exponentially over the last year. One of the major drivers of this increase has been the surge in global grain and oilseed prices. The weakening rand, increasing cost of fertilizers and the load shedding (which leads to increased costs along the supply chain) are some of the other drivers of this increase in food prices.
Another aspect contributing to the current affordability challenges consumers are facing, relates to the cost of credit. The lending rate in South Africa has continued along the same trajectory since December 2021 and saw yet another increase in Q4 of 2022. The main driver behind this upcycle in the prime lending rate has been the CPI. As commented on earlier, the CPI has been above the SARB’s target band and the only mechanism the Reserve Bank has of curbing the CPI, is by increasing interest rates.
The rate at which interest rates have been increasing over the past year, has been staggering – increasing by 350 basis points over 12 months vs. the previous upcycle of 200 basis points over the span of 2 years. Indeed, for young consumers that are relatively new to the credit world, these continued and steep interest rate increases have an impact of note on household expendable income.
Looking at the second element of the CDIx, the Market Appetite for consumer credit, the National Credit Regulator’s data indicates that the number of credit applications received has soared to record levels in Q3 of 2022. (Note: These results are lagged by a quarter.)
Appetite has reached record levels, but approval levels have only shown the slightest of upticks in Q3. This resulted in a significant drop in approval rates. We saw the consumer credit approval rate moving down from 33.3% in Q2 2022 to 30.5% in Q3 2023. This highlights that consumers are looking towards credit to cover the shortages in their cost-of-living expenses, but only approved less than a third of the time.
The fourth aspect of the CDIx, considering new business volumes in 2022 Q4, we have seen these continuing on the recovery path to pre-pandemic levels, with new business volumes in November (Black Friday and early Festive season spend) reaching the highest monthly total since December 2019.
On the other hand, new business values continue to exceed pre-pandemic – but this is mainly due to inflationary pressures.
The CDI itself, tracks the rate of first-time defaults by looking at the rate at which accounts get into technical arrears (>90 days) for the very first time.
The latest composite CDI has shown marked deterioration – both from a Y-o-Y and a Q-o-Q perspective.
We have seen quarterly and yearly deterioration for each of the five products that are tracked as part of the CDI – Home Loans, Vehicle Loans, Credit Card, Personal Loans as well as Retail Loans.
All indications are that the CDI has returned to the long-term deterioration that was present prior to the onset of Covid. This comes as no surprise, as the structural reforms that are required to get the South African economy to grow and strengthen again, are yet to be implemented.
When considering the consumer segment split view of the composite, an interesting observation emerges.
As expected, the more affluent consumers (FAS Groups 1 and 2) typically have lower CDI than lower affluence consumers do. This is really as expected.
What is interesting, is that over the last year, four FAS Groups of consumers that showed marked deterioration in their CDI. These 4 groups represented the most extreme ends of the consumer affluence scale.
Firstly, FAS Groups 1 & 2, who are the most affluent consumer groups, have been showing increased distress over the last two years, as these consumers have become increasingly reliant on unsecured credit to fund their lifestyle. In the early post-pandemic period, these consumers used their secured facilities for this purpose, but as these resources became fully utilized, these consumers turned to unsecured credit (Personal loans specifically) to fund the gap. Most recently, we have seen these consumers exhibiting a steep increase in the average loan size for Retail Loans.
The other two FAS groups showing deterioration over the last year were Groups 5 & 6 (the two lowest affluence consumer groups). This deterioration has been the result of these consumer’s re-entry into the credit economy (following the pandemic-induced risk aversion of most lenders) as retailers have shown signs of sustained higher levels of new credit being extended to these consumer groups. Keep in mind that the product where these low affluence consumers have highest exposure, is in fact the retail credit market.
This quarter’s CDIx for the first time includes views on what we see happening in the world of Debt Review Applications on the Bureau.
This information is provided to the bureau via the National Credit Regulator’s Debt Help System.
We have seen a steady increase in debt review applications over the last three years, with application volumes increasing by over 1000 per year. Keep in mind that these are consumers who choose to sign up for debt review to assist them in re-negotiating repayment agreements to facilitate improved month-to-month affordability of these loan repayments. Keep in mind also that these consumers choose to apply for debt review, even though it means that they are not allowed to take up new credit whilst they are under debt review.
Conclusion
In conclusion, not only have we seen the steady increase in debt review applications over the last 3 years, but interestingly, 40% of this growth emanated from the high affluence consumers in FAS Groups 1 and 2. This highlights the fact that high affluence consumers are under increased pressure to make ends meet from a cost-of-living perspective, and that we are now at a point where these consumers are looking at debt review as a means to ease the financial pressure.
Get the Q4 2022 CDI Report for a more detailed view of the latest consumer default trends.
Download Full CDIx Report
Watch the Video
Watch our video in which Ans takes you through the various graphs that bring these data insights to life.
