Point of view: Young South African loan defaults drop, says Experian

Published Jun 22, 2024


LOAN defaults have decreased for young South Africans, despite access to them still being a hurdle, according to Experian’s Consumer Default Index (CDIx) for the first quarter of 2024.

According to the (CDIx) for Q1 2024, there is a complex picture for young South Africans, highlighting the need for increased access to responsible credit and enhanced financial literacy.

The CDIx measures the rolling default behaviour of South African consumers with home loans, vehicle loans, personal loans, credit card, and retail loan accounts.

According to the report, the CDI for the youngest consumer group – the Yearning Youth – as measured by Experian’s Financial Affluence Segmentation (FAS) dropped significantly from 21.9 in March 2023 to 16.8 in March 2024.

“However, this positive trend doesn't necessarily mean their finances have drastically improved. It’s rather a case of them finding it harder to access new loans than before the pandemic, as the supply of credit in this category has not returned to pre-pandemic levels,” the index said.

Experian head of commercial strategy and innovation Jaco van Jaarsveldt said this consumer segment, representing 16.4% of credit-active South Africans, is traditionally highly exposed to unsecured credit, with over 80% of the Yearning Youth being active in the retail credit market.

“We have, however, seen a slowdown in credit extension to these young and credit-inexperienced consumers so that while fewer defaults are good, limited access to credit can hinder their financial progress. This highlights the need for increased financial literacy and responsible credit options for young South Africans,” he said.

The index said considering all consumer segments, the Composite CDI remained relatively stable from December 2023 to March 2024. However, when this year’s data is compared to last year’s, the CDI continued to show deterioration, moving from 4.56 to 4.69.

“In simpler terms, more people are struggling to repay their loans compared to last year. However, considering the index has remained flat quarter-on-quarter, this indicates that although consumers still find it challenging to honour debt commitments, the situation is not worsening at the same speed observed in 2023,” said Van Jaarsveldt.

According to the index, at a product level, Home Loans saw the largest deterioration in CDI, with a 21% deterioration year-on-year up from 2.22 to 2.68. “Although still significant, the rate of deterioration is slowing down, considering that in Q4 2023, we saw an annual deterioration rate of 60%.

“With home loans accounting for the majority share of the total market exposure, the deterioration in home loans was the main driver of the deterioration seen in the composite CDI.

“Credit cards were the other (albeit less significant) driver of the deterioration in composite CDI, moving from 7.28 to 7.63 year-on-year, a 5% deterioration. This suggests that mid- to high-affluence consumers – who typically qualify for these high-end credit products – continue to find it difficult to repay debt and are becoming more dependent on their credit cards to cover monthly expenses,” it said.

Despite the Consumer Price Inflation (CPI) remaining within the South African Reserve Bank’s target band of 3% to 6%, the cost of living continues to increase, putting pressure on consumers, the index found.

“The rapid rate at which interest rates have increased and have now been at a sustained high level for the last 12 months has put immense strain on credit-active consumers, particularly those exposed to secured credit,” Van Jaarsveldt explained.

The report also highlights a strong market appetite for consumer credit, with application levels reaching record highs in Q4 2023. However, approval levels remain low at 32.2%, suggesting that more than two-thirds of applications are rejected – partly due to consumers’ inability to afford additional credit commitments.

Experian said its Up app provides a valuable solution, offering a user-friendly platform for managing financial wellness.

"Through gamified education, budgeting tools, and credit score tracking, the platform empowers consumers to make informed decisions and build a solid foundation for their financial future,“ it said.

“By understanding their credit reports and scores, young South Africans can take proactive steps to improve their creditworthiness, access responsible credit options, and ultimately unlock their full financial potential. Up provides the knowledge and tools to navigate the credit landscape with confidence, turning financial data into a powerful tool for empowerment,” Van Jaarsveldt said.

* Maleke is the personal finance editor.