New data from the credit bureau Experian shows that the number of first-time defaults borrowers rose in the first quarter of 2021, while South Africa’s wealthiest consumer segments continue to be hardest hit by macroeconomic conditions.

Experian South Africa’s Consumer Default Index (CDI) deteriorated from 4.02 in December last year to 4.33 in March 2021 as people struggled with their payments in the context of increasing economic activity following the easing of strict lockdowns Keeping pace towards the end of 2020.

“This deterioration is primarily due to the increase in business volume in the second half of 2020, when the strict blocking rules were relaxed at the end of the 2nd wave of Covid – especially for credit cards and personal loans over Black Friday and the holidays of the year 2020. “, said Jaco van Jaarsveldt, Chief Decision Analytics Officer at Experian Africa.

“The combination of the opening up of the economy and the extended ‘month’ of Black Friday has resulted in an increase in the frequency and value of first-time defaults among consumers in South Africa.”

He said the decline was due to the collective deterioration of all products that include the CDI, with the exception of home and personal loans. Home loans showed a slight improvement from 1.86 in March 2020 to 1.73 in March 2021 as consumers continue to focus and invest in their home as it has increasingly become a hybrid workplace.

“Retail lending continues to show an improvement from 1:22 p.m. in March 2020 to 11:20 a.m. in March 2021 due to stricter lending criteria imposed prior to Covid, exaggerated by the very restricted trading conditions during the various lockdown periods.

Despite these improvements, the CDI saw a year-over-year deterioration due to the deterioration in vehicle loans (3.67 in March 2020 to 4.1 in March 2021), credit cards (6.74 in March 2020 to 8.39 in March 2021) and personal loans (9.67 in March 2020 to 10.42 in March 2021).

It is evident that the deterioration correlates with consumer needs – vehicles have declined since the Covid outbreak as commuting to work was no longer required, Experian said.

Similarly, in these troubled times, consumers are increasingly turning to personal loans and utilizing available revolving credit card facilities to cover the daily cost of living that began long before the Covid pandemic broke out and has been and is being carried by an economy that is changing recovering faster than expected, is still overshadowed by structural issues that need to be addressed before long-term sustainable growth can be realized.

As in the last three quarters, groups 1 and 2 of the Financial Affluence Segmentation (FAS) continue to show the most significant deterioration (CDI% change), according to the credit specialist. “We continue to see that the wealthiest FAS groups are hardest hit because of their high exposure to secured credit. There was a notable impact on Luxury life Group, ”said Van Jaarsveldt.

“With a average home loan opening balance over R1.2 million (54% own a house and 25% own several properties) and an average Opening the vehicle credit balance of more than R450,000, this group is exposed to heavily secured loans, which leads to a deterioration in the CDI from 2.65 in March 2020 to 3.42 in March 2021. “

The Aspirational Achievers group, which was exposed to similarly secured credit, caused the CDI to deteriorate from 3.55 in March 2020 to 3.80 in March 2021, he said.

The money-conscious majority, which makes up the majority of the South African credit-active population (~ 40%), saw the CDI improve from 6.44 in March 2020 to 6.08 in March 2021.

While exposure to secured loans is low in this group (25% own a property and the average opening balance of vehicle loans is – R160,000), exposure to unsecured facilities such as personal loans and personal loans is high, with these consumers being – 30. hold% of the market of these two products. The dramatic improvement in the retail CDI was a driver of the net improvement in the FAS 4 CDI.

When analyzing its data, the index looks at six macro-financial segments (Financial Affluence Segmentation, FAS):

• Luxury life (2.5% of the lending population) – Wealthy people who represent the upper classes of South African society and who have the financial freedom to afford expensive houses and cars;
• Ambitious top performers (9.3% of the lending population) – Young and middle-aged workers with the means to afford a high standard of living while advancing their careers, buying property and raising families;
• Stable donors (7.2% of the lending population) – Young adults who depend on financial products to make ends meet or to afford certain necessities such as clothing and school fees or seasonal luxuries;
• Money conscious majority (40.0% of the lending population) – Senior citizens who are aware of where and how they spend their money; often look for our financial products to cover basic needs or for unforeseen expenses;
• Working life (24.6% of the lending population) – Financially limited, with salaries below national tax thresholds, they spend their money on basic necessities such as food and shelter;
• Yearning boy (16.4% of the lending population) – Very young people entering the labor market; This mix of blue-collar workers and possibly student workers earns low salaries and is limited to spending on non-essential goods.

Read: A Third of the South African Middle Class Wiped Out: Lenders