The Experian Data Insights Check-In brings you key insights based on the Q1 2023 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 Q1 2023 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 – Q1 2023 CDIx Key Insights
8-minute read
Consumer Price Inflation has shown further easing over the course of the last quarter, moving down marginally from 7.2% in December 2022 to 7.1% in March 2023. Note that this does not mean that cost of living is easing, but rather that living costs are rising at a slower rate.
At 7.1% in March 2023, 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). Energy (and alternative energy) costs are also impacting on other elements of consumer cost of living, e.g. the cost of food stuffs.
Another aspect contributing to the current affordability challenges consumers are facing, relates to the cost of credit. Indeed, the lending rate in South Africa has continued along the same trajectory since December 2021 and saw yet another increase in Q1 of 2023. The main driver behind this upcycle in the prime lending rate, which at 11.25% at the end of 2023 Q1, the highest it had been since 2009, 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 425 basis points, over 15 months, vs. the previous upcycle of 200 basis points over the span of 2 years.
For young consumers, being relatively new to the credit world, these continued and steep interest rate increases would have had an impact of note on household expendable income and might have caught them off-guard. We have had an announcement of a further 50 basis point increase in interest rates last week – meaning that the Prime lending rate as of 25 May 2023 stands at no less than 11.75%
Looking at the second element of the CDIx, i.e. the market appetite for consumer credit, the National Credit Regulator’s data indicates that the number of credit applications received, continues to increase to ever higher record levels in Q4 of 2022 (note that these results are lagged by a quarter).
However, as appetite has reached record levels, we have seen approval volumes increase at a much more conservative rate in Q4. The approval rate stands at less than one third of total applications received. This highlights the fact that consumers are looking to credit to cover the shortages in their cost-of-living expenses, but applications are only approved less than a third of the time.
Moving on to the fourth aspect of the CDIx, looking at New Business volumes in 2023 Q1, we have seen the characteristic drop in new business, following the uptick usually observed during the Festive Season. Overall recovery to pre-pandemic levels of new business volumes is slowing down
New Business values exhibit similar seasonal trends in Q1 as the new business volumes do. The exception, though (as we have commented before) is that new business values not only recovered, but soon exceeded pre-pandemic values. This was partly driven by inflationary pressures (especially in the instance of Vehicle Loans, but also cost of living – as consumers with high exposure in Home Loans drew down on these facilities to maintain their standard of living. This trend of increase in new business value seems to be slowing as well (like the observation made regarding new business volume recovery).
And finally, the fourth component of the CDIx – looking at portfolio performance metrics.
When considering the consumer segment split view of the composite, an interesting observation emerges.
- As expected, the more affluent consumers (FAS 1 and 2) typically have lower CDI than lower affluence consumers do.
- Interestingly though, we have seen that there are four FAS Groups of consumers that showed marked deterioration in their CDI over the last year. 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 steady increase in distress over the last two years, as these consumers have become increasingly reliant on unsecured credit to fund their lifestyle, and also are typically highly exposed in secured credit – products which typically upon increase of interest rates, have an immediate negative impact on household expenses. Indeed, during the early post-pandemic period, these consumers used their secured facilities to bridge the affordability gap, but as these resources became fully utilized, these consumers turned to unsecured credit (Personal loans specifically) to fund the gap.
- 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 particularly 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.
Regular followers of the CDIx would recall that we introduced Debt Review reports in the CDIx for the first-time last quarter. This quarter we have expanded on these views to include product and FAS split views.
Debt Review 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 four years – as consumers have become more and more aware of the benefits of the debt counselling process and using this to repair their debt situation. 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.
Not only have we seen the steady increase in Debt Review applications over the last 4 years, but interestingly, we have seen a steady increase in representation of high affluence consumers (FAS Groups 1 and 2). This just 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 to ease the financial pressure.
Get the Q1 2023 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.
