TransUnion Consumer Credit Index Shows Credit Health Deteriorating First Quarter of 2013
Index Tracks Consumer Credit Health; Impaired Accounts Rising Sharply
TransUnion, a global leader in credit and information management, today released the first quarter results of the TransUnion Consumer Credit Index (CCI). The CCI declined to 44.4 in Q1 2013 from 49.4 in Q4 2012, reflecting a clear deterioration in consumer credit health.
The CCI is a unique indicator of consumer credit health based on a 100-point scale. An index above 50.0 indicates improving credit health, below 50.0 represents deterioration. Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.
The fall in the index reflects a marked escalation in consumer loan impairment rates and rising pressures on household cash flows and budgets.
Impairment records across the TransUnion payment profile database have deteriorated considerably in recent months. “The number of accounts 3-months in arrears is up by 10% in the last year, a similar increase to that experienced between2007 and 2008,” said Geoff Miller, TransUnion CEO.“While the actual number of impaired accounts remains some way below the distressed levels of 2009, it is clear that they are now rising quite quickly.”
Heavy job losses sustained in the fourth quarter of 2012 and January 2013 are a possible explanation for why impairment records across the TransUnion payment profile database have deteriorated in recent months. Official data released by Statistics SA in February 2013 showed that almost 70,000 jobs were lost in the fourth quarter of 2012[1], while Adcorp, an employment agency headquartered in Johannesburg, estimated that about 40,000 formal sector job losses were sustained in January 2013[2]. “The employment situation is a concern. Retrenchments are a clear and direct risk to consumer credit health,” said Miller.
Whereas the risks to South African consumer credit health were fairly balanced in Q4 2012, they appear to have tilted toward increased consumer credit risk in Q1 2013. “While the index does not yet indicate a crisis, the deterioration in credit health is a clear signal of rising financial stress levels and that credit providers need to remain prudent,” said Miller. He added that excessive borrowing and lending could easily begin to push more consumers into a position of budget distress.
Released on a quarterly basis to the public, the TransUnion CCI measures aggregate consumer loan repayment records; tracks the use of revolving consumer credit facilities as an indicator of distressed borrowing; estimates household cash flow as a means of determining financial pressure/relief; and quantifies the relative cost of servicing outstanding debt. These aspects are then combined into a single numeric score of consumer credit health. The index is compiled by TransUnion Credit Bureau, with technical support from market intelligence firm ETM Analytics.
Unlike other indices in the market, the CCI is driven by objective market data rather than consumer surveys or questionnaire responses. “TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key, publically available macroeconomic variables impacting household finances,” explained Miller.
Analysis suggests that the CCI may be a good leading indicator for business activity in certain economic sectors, particularly those more closely related to consumer spending. A full report on the quarterly TransUnion CCI can be found on www.transunion.co.za.
