Despite ongoing financial pressures, South African consumers are showing signs of optimism, according to Experian’s Q3 2024 Consumer Default Index (CDIx) which reveals a record-high appetite for credit, coupled with a slight improvement in the overall default rate.
This cautiously optimistic outlook points to a potential turning point in consumer financial health, supported by improving economic conditions such as lower interest rates and easing inflation.
The CDI is a comprehensive measure of consumer default behaviour across various credit products, including Home Loans, Vehicle Loans, Personal Loans, Credit Cards, and Retail Accounts.
The index improved quarter-over-quarter, moving from 4.77 in June 2024 to 4.37 in September 2024. While this aligns with seasonal trends—Q3 typically experiences improvements in anticipation of Q4’s festive spending spree—it still signals a positive shift.
More telling is the year-on-year performance of the CDI, which avoids seasonal distortion. Here, the improvement is notable: the composite CDI fell by 10%, dropping from 4.84 to 4.37. This suggests that South African consumers, after grappling with severe financial strain over the past two years, may be experiencing the first signs of relief. The CDI tracks marginal default rates, measuring first-time arrears as a percentage of total balances outstanding.
"While the year-on-year improvement in the CDI offers a glimmer of hope, the smaller-than-usual quarter-on-quarter improvement in Q3—a period typically marked by more significant gains in anticipation of increased Q4 spending—suggests that consumers remain under high levels of financial distress," says Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian.
He adds, "The latest results suggest that in spite of the ongoing financial pressures consumers are facing, there are early signals of change for the better—particularly as broader economic conditions improve. This optimism should be approached with caution, as we foresee consumers to still be in a tight spot for the foreseeable future, as the recovery will not be instantaneous. Furthermore, it highlights the importance of responsible financial management as we head into the festive season."
A breakdown of the CDI by product type reveals improvements across most categories, with one notable exception: Retail Credit. This segment deteriorated by 6%, reflecting ongoing challenges in the retail space. In contrast, Home Loans led the improvement, with the CDI dropping a significant 18% year-on-year. Personal Loans followed suit, improving by 9%, while Credit Cards showed a more modest 6% decline in default rates.
While consumer appetite for credit reached record highs in Q2 2024, approval rates remain stubbornly low at just 32%, the CDI says this means that more than two-thirds of credit applications are being rejected. The disparity between high demand and low approval rates highlights the dual challenge facing consumers: tightening credit criteria and ongoing affordability struggles.
"This contrast between high application volumes and low approval rates highlights the importance of responsible lending practices and the need for consumers to carefully consider their affordability before taking on new debt," van Jaarsveldt says.
The easing of Consumer Price Inflation (CPI), which stood at 3.8% in September 2024, offers some respite to households. However, the cost of living remains a pressing concern, particularly in light of Eskom’s latest electricity tariff hike request, the CDI says.
Van Jaarsveldt says: “Consumers must exercise caution and prioritise responsible spending habits by distinguishing between ‘wants and needs.’ While deals may be tempting, accumulating further debt in this challenging economic climate can exacerbate existing financial vulnerabilities.”
PERSONAL FINANCE