TransUnion Consumer Credit Index Shows Credit Health Holding Steady in the 2nd Quarter

TransUnion, a global leader in credit and information management, today released the second quarter results of the TransUnion Consumer Credit Index (CCI). The CCI is a unique indicator of consumer credit health based on a 100 point scale. An index above

Second quarter results for South Africa show that the CCI has reasserted a downward trend that began in Q4 2010, declining to 50.7 from 54.4 in Q1 2012, indicating steady consumer credit health despite the increase in consumer loans in South Africa. Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.

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.

The breakdown of the index results shows that consumer loan impairments are rising. In other words, there has been an increase in consumer accounts that are more than 90 days in arrears on their required payments.

“It’s a more cautious picture than we saw in Q1, but after strong improvements to credit health in 2010 and 2011, it would be a mistake to interpret the Q2 results too negatively, as one quarter does not make a trend,” said Geoff Miller, CEO TransUnion Credit Bureau. “It does, nonetheless, suggest that lenders may need to re-assess their risk appetite for new loans and adapt accordingly.”

The number of impaired accounts has risen almost 9% since mid-2011, comprising 1.8% of total accounts, according to TransUnion. At the same time, the prime interest rate is at its lowest level in more than 30 years, while South African Reserve Bank data shows that overall household debt, as a percentage of household disposable income, has only marginally increased in recent months.* “The rise in the number of impaired accounts at a time when interest rates are at multi-decade lows and when, on the whole, household income growth appears to be matching the rate of new household borrowing, suggests that impairments may be concentrated in isolated markets - the unsecured loan market stands out as a potential source of the bulk of these impairments,” Miller added.

The latest data raise the potential for a moderate deterioration in credit health in coming quarters. “To improve the credit picture, loan repayment behavior needs to improve, credit card usage needs to be better managed, and basic household goods and services costs would need to moderate,” said Miller. “Recent rand weakness is a risk to imported commodity prices. This could have a negative effect on household budgets, but we would need to assess the extent of household income growth going forward before making a clearer judgment, possibly in TransUnion’s Q3 CCI report.”

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 http://www.transunion.co.za/

*South African Reserve Bank Quarterly Bulletin