The inaugural Experian Consumer Default Index (CDI), shows that R13.45 billion in consumer debt value across home loan, vehicle loan, personal loan and credit card accounts defaulted for the first time between May and July this year.

The Experian CDI reflected an overall index reading of 3.57%, an improvement of 0.24% compared to the index reading for July 2016 of 3.81%. This indicates the rate of first-time credit default is slower than the previous year and could be indicative of the recent slowdown in credit extension. Affordability legislation, the introduction of pricing caps as well as reduced interest rates have resulted in lenders implementing stricter lending policies.

The index measures the rate of first-time default of 14.7 million consumers across 18.4 million active home loan, vehicle loan, personal loan and credit card accounts with R1.54 trillion in total outstanding debt*.

Read more: The rise of informed SA consumers

Simon Russell, managing director of Experian South Africa, says the index is the first of its kind in South Africa in providing insights into the dynamic debt pressure on the country’s different consumer groups.

Product level default index

The Experian CDI shows that annualised first time credit default levels for personal loans, credit card and home loans improved while vehicle loans deteriorated against the July 2016 figures.

David Coleman, chief data officer at Experian, says, “When looking at the default rates from a product class perspective, the CDI highlights a clear differentiation between more risky, unsecured lending asset classes as opposed to less risky, secured lending products.”

Personal loans, which represent the riskiest asset class, had the highest CDI of 8.54% compared to all other product types. This product recorded R5.12 billion in new defaults over the period May to July 2017. The other unsecured asset class, namely credit card, recorded the second highest CDI of 6.91%, but improved year-on-year from the 7.32% peak experienced in July 2016.

Vehicle loans was the only product class where the rate of default increased year-on-year at 3.13% from July 2016’s 2.85% and could be linked to the decline in vehicle sales.

The CDI for home loans remained virtually unchanged at 1.84% in July 2017. 

Consumer segmentation default index

Geospatially, the best performing groups tend to be in affluent urban areas, particularly in the Western Cape, while the worst performing groups are in Mpumalanga and Limpopo. 

“The prevalence of personal loan defaults in the latter areas points to an inability for these population segments to save and create asset wealth for future generations,” Russell asserts. Overlaying the Mosaic segmentation, provides further insights into the individual groupings experiencing the most debt stress.

Such is the case in the worst performing segment, ‘indigent township families’, which experienced a significant deterioration from 7.13% in July 2016 to 8.15% in July 2017. This segment represents 3.86% of the South African population and are predominantly aged 25 to 29 (16.72%), have limited education beyond grade 12 (3.56%), earn less than R38 200 in annual household income (73.31%) and stay in rented informal dwellings (40.11%). This segment had the worst overall performance in credit card, CDI of 12.25%, and personal loans, CDI of 11.85%. Earning low incomes, they are reliant on unsecured lending to finance their existence and could be lacking financial literacy to manage the debt.

At the other end of the spectrum, lenders advance the most debt to segments such as the Hard-working Money segment who represent 2.83% of the South African population and had average total credit exposure of R203.25 billion over the period May to July 2017. The mid-aged 35 – 49 (25.36%), educated (26.27% educated beyond grade 12) segment earn annual household incomes in excess of R150k (57.22%) and stay in houses that are not yet paid off (45.57%) in suburbs around industrial and mining areas. Default behaviour of consumers in this segment improved on the July 2016 CDI of 3.13% to 2.99% recorded in July this year.   

For Russell, these segmentation findings highlight the impact of lack of education and long-term consequences thereof. “Education remains a recurring challenge in the South African context and the CDI reinforces the importance of this as a fundamental foundation to tackle over indebtedness in the country and to help drive economic growth.”

The Experian CDI will be published monthly, tracking the rate of first time credit default across 36 unique types and 9 overarching groups of the South African population.

*The Experian Consumer Default Index (CDI) is designed to measure rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan and credit card accounts. The index tracks the marginal default rate as it measures the sum of first-time (accounts that have never) defaulted balances as a percentage of the total sum of balances outstanding.