Credit warning for South Africans

Even though the country’s credit picture is improving, South Africans are increasingly turning to non-bank lenders for personal loans, which they are struggling to repay.

This was revealed in TransUnion’s fourth quarter 2024 South Africa Industry Insights Report, which found that the country’s credit card issuers have adapted their acquisition strategies to enable prudent growth in 2024.

Effective risk management also led to a decline in account-level delinquencies last year.

During the fourth quarter of 2024, credit card issuers reduced the average credit card limit on new accounts by 3.9% year-over-year (YoY) while simultaneously increasing the credit limits on existing credit cards by 5.0%.

The limit increase observations were prominent among prime plus consumers, which saw a 4.1% average credit limit increase, and super prime consumers, which went up 1.8%.

Due to higher line access and consumers continuing to leverage credit cards to meet financial and transactional needs, total outstanding balances rose by 7.8% year over year.

TransUnion South Africa’s Q4 2024 Consumer Pulse Report had a similar finding, with 13% of consumers responding that they increased their use of available credit.

Even so, South Africa’s credit picture has been improving since the second quarter of 2022.

This is evident in the decreasing number of delinquencies – accounts 90 days or more past due – which decreased by 34 basis points year-on-year in the fourth quarter of 2024.

This trend shows that South African consumers have been able to maintain their credit card payment obligations while leveraging their cards to navigate the continued high cost of living that has put pressure on disposable income.

“Lenders who are sustaining growth and profitability are drawing on enhanced risk attributes to stimulate a greater share of spend and wallet by identifying consumers who are likely to use credit lines judiciously,” said TransUnion Africa CEO Lee Naik.

“At a time when new account acquisition is costly, enabling lower-risk consumers to re-engage with their inactive cards or to extend the use of existing cards will encourage prudent growth and enable customer loyalty.”

Non-bank personal loans

Even though South Africa’s credit performance is improving, one type of loan showed a concerning pattern in the final quarter of 2024.

While personal loan originations from traditional banks declined by 6.2% from Q4 2023 to Q4 2024, non-bank personal loans grew by a notable 13.9%.

The report explained that the personal loans market continues to be dominated by younger borrowers, although the total share of originations by borrowers aged 45 and younger declined marginally in 2024.

According to the report, 75% of bank personal loans were granted to Gen X and Millennial customers during Q4 2024, down from 78% one year prior.

In the fourth quarter of 2024, 70% of non-bank personal loans were granted to the same age group, compared to 72% one year prior.

Both bank and non-bank personal loans grow their portfolio among the youngest Gen Z borrower group.

In the same quarter, bank personal loans going to Gen Z borrowers increased to 19%, up from 16% one year prior.

Non-bank personal loans going to these consumers increased from 12% to 16% during the year.

Non-bank personal loan originations among Gen Z consumers grew by 48.5% year-on-year, with this cohort accounting for 15.5% of all non-bank originations.

With respect to credit performance, bank personal loan account-level delinquencies dropped by 8 basis points year-on-year to 26.6%.

However, non-bank personal loan delinquencies increased by 452 basis points to a staggering 40.6%.

This means that nearly half of non-bank personal loan holders are unable to maintain their debt repayment obligations.

“Non-bank personal lenders have a more tolerant risk appetite than banks, and they are responding positively to market demand across age groups and risk tiers,” Naik said.

“Lenders that maintain rigorous risk assessment practices that enable greater and earlier prediction of risk, offer education on how to use and manage credit, and empower younger consumers to build their credit profiles, will ensure the continued sustainability of the personal loan market.”