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The current pace of growth in unsecured lending is “unsustainable” says TransUnion’s Geoff Miller – but is South Africa facing a lending crisis?

By Ian Armitage

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redit information giant TransUnion’s latest Consumer Credit Index (CCI) has a stark warning to lenders and households – beware the dangers of using credit to fund short-term consumption.

The CCI fell into negative territory for the first time in more than three years in the third quarter of 2012, coming in at 48.6 points from 51.2 points in the previous quarter.

South African consumer credit health has “deteriorated” says TransUnion Credit Bureau’s CEO Geoff Miller. “Our index was influenced by two factors: the number of consumer loan accounts that have lapsed meaning 90 days in arrears - grew by five

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percent year on year. In addition, we are seeing a rise in the use of credit cards on year over year basis with utilisation increasing eight percent in 2012.”

He called the current pace of growth in unsecured lending “unsustainable”.

“Of note is the fact that there are more people that are delinquent.

Delinquencies are increasing. The numbers of customers who aren’t paying back is increasing.

“Unsecured lending is up 20-30 percent so there’s a lot more credit out there, a lot of banks are out there pushing for easy-to-get unsecured credit and so consumers are feeling a little stressed. We’ve seen a move away from 30, 60, 90 day loans to 12, 24, 36 and 48+ month loans and so consumers are having to manage longer lending term relationships and with the economy the way it is, overall, that is causing a bit of stress. TransUnion doesn’t think there’s a credit bubble, but that the level of growth in the unsecured lending space can’t continue at its current pace.”

He says big lenders are well protected, however.

“If you look at the balance sheets of the big four banks, their exposure to unsecured credit only makes up between four to seven percent of the total

debt outstanding. Therefore, even if delinquencies rise substantially, it won’t hurt them too dramatically. The other banks that are more reliant on unsecured lending haven’t shown any stress either, but they’re more open to potential future stress.

“However, you have to look at it from the consumers’ side also. There were Parliamentary hearings a couple of weeks back looking at credit amnesty.

From our perspective it‘s not something that will have the desired effect that the government is wishing for.

“Regardless, the decline reflects worsening loan repayment behaviour and a greater use of revolving credit by South African households to supplement monthly budgets.

“All things said, while the national consumer credit market as a whole does not appear to be undergoing acute levels of distress, there are indications that certain market segments are indeed coming under pressure.

“South Africa is not one household but millions of households, and within the broader view of consumer credit health, one must bear in mind that different households or groups of households may experience very different degrees of financial distress around servicing their debt obligations.

Regardless, the decline reflects worsening loan repayment behaviour and a greater use of revolving credit by South African households to supplement monthly budgets

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TransUnion focus finance

“The index tells us that should unsecured lending continue to grow at similarly strong rates to the past 12 to 24 months, there exists the potential for a mismatch to develop between consumer borrowing and underlying consumer credit health.”

TransUnion data shows that impaired accounts now comprise around 1.8 percent of total accounts.

While this figure has been rising, it remains below the distressed levels of 2009 when impairments increased to 2.2 percent of total accounts.

“The number of impairments would have to increase by about 20 percent to get back to 2009 levels,” says Miller. “Credit providers make provisions for loan impairments, especially in light of the growth in their unsecured credit business, which inherently carries a higher risk of impairment than secured credit.”

What is TransUnion’s CCI? Well, it is certainly unique. The CCI is driven by objective market data rather than consumer surveys or questionnaire responses.

“Our indicator combines actual consumer borrowing and repayment behaviour obtained from the TransUnion credit database with key, publically available macro-economic variables impacting household finances,” says Miller.

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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, with technical support from market intelligence firm ETM Analytics.

“Unlike other indices it’s not a survey based,” says Miller. “There are two major components.

One is macro-economic

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Business Connexion structured a National Centre of Excellence for Application Development, allowing us to become one of the largest software development companies in South Africa, uniquely positioning us to provide a quality and consistent service across the entire Application lifecycle.

Business Connexion and TransUnion Don’t Get Fooled Again Negotiating with a used car salesman is the stuff that jokes are made of. But it’s no laughing matter when he gives you a pittance for your loyal old car and the trade-in costs more than expected.

If only you had one of those handy guidebooks of used car prices to make sure you were getting a fair deal.

Well now you can, because Business Connexion has developed a nifty little application that delivers all the prices to your cellphone. The Dealer’s Guide app tells you what a car of any make, model, age and mileage is worth. It also lets you look up a vehicle by its number plate to see if it’s been stolen, been to the panel beaters, or mysteriously has fewer kilometers on the clock than it did a year ago. Armed with that knowledge you won’t get fooled again.

The consumer version is due for release at the end of October, and you’ll pay around R50 in advance to run background checks on five vehicles. The data is never downloaded to your handset, so it doesn’t hog memory space.

Only the app resides on the phone, and summons the required data over the network when you type in a vehicle’s details.

The app is so ingenious and so useful that it recently won MTN’s App of the Year Award as the best Android app, second place for the HTML5 category, and third place for the Apple App of the Year. That means the software works on almost all handsets, whether it’s an iPhone, Blackberry, a model using the Windows operating system or an Android like the Samsung S3.

Business Connexion initially developed the app for TransUnion, which produces the Dealer’s Guide used by car salesman everywhere. The companies have a long relationship, with Business Connexion developing TransUnion’s website, hosting its

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technology systems in its data centres and supplying technical and networking support.

One thing that hadn’t entered the mobile age was the Dealer’s Guide. “The last thing you want is to have a salesman leaving his customer on the forecourt, going into his office and trying to find his book,” says Eric Stokes, Business Connexion’s business unit manager for mobile services. “So we developed an app that lets them look up all this information quickly and easily on their phone.”

Business Connexion developed the software for free as a proof of concept, with an agreement that if TransUnion liked the product they would share the revenue it generates. It costs each dealer only a few cents for every check, but with thousands of dealers checking cars every day, the revenue for both partners is potentially huge.

When the two companies realised what a winner they had, they decided to make it available for consumers too. The software has been enhanced several times with new features extending its usefulness. The number plate tracking feature was an early addition, with the software interrogating back-office system run by the police, insurance companies and panel beaters to check a vehicle’s history.

“It links to a lot of back-office systems and eliminates all the phone calls and checks you used to have to make. You can look up a vehicle and if it’s been stolen that will be flagged with a red light,” says Stokes. “If someone tells you it’s never been in an accident this will show you immediately if it’s been in an insurance claim.”

The user can email the results for each car and its value to themselves or to the potential buyer as a permanent record. If a dealer doesn’t want the car a customer is offering to trade in he can email the details to other dealers, and if someone offers to take the car, the deal is done.

In the consumer version, the email ability means you can send the details to your insurance company to see what it will cost to insure the car you are planning to buy.

You’ll find it in a variety of apps stores, including the Apple, Blackberry, Android and Windows stores, and can download it for free.

Then you register and decide how many cars on the forecourt or advertised in magazines you’re likely to research.

“Consumers will be empowered by this. When you walk into a dealership the salesman may tell you the car he’s selling is worth R300,000 and this app will tell you it’s worth R250,000.

That gives you a lot of negotiating power so the R10 you spend looking it up might save you R50,000,” says Stokes.

Armed with a cellphone and the Dealer’s Guide app sitting in your back pocket, negotiating with a used car salesman finally might be fun.

data and the other is data from the TransUnion Credit Database. On the macro-economic side we look at things like money supply, inflation, debt servicing costs that are sourced from Stats SA and SARB and compiled by our our partner ETM Analytics. We aggregate some of those numbers to arrive at something that’s more relevant for consumer credit and then the other half is from our database. TransUnion has a database of every credit active consumer here in SA. We get data from over 1200 financial institutions here as well as telecommunications

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companies and insurers.

We look at stuff like credit card utilisation, which is basically your current balance versus your available limit. On a year-on-year basis we have seen that go up eight percent, so consumers are using more credit for their purchases.

“I guess what is unique is that it’s the only index out there that’s looking at consumer credit behaviour.

Other industries are typically more service based and rely on feedback from individuals.

Ours are all statistics or reliable data assets. We have done some studies, we’ve looked at it against retail sales, cars sales, GDP and it

The index is compiled by TransUnion, with technical support from market intelligence firm ETM Analytics

TransUnion focus finance

seems to correlate quite well to the business cycles. In some cases, what we’ve seen is that the index is actually leading and showing where certain things are going. It seems to trend quite nicely with other key indicators in the country.”

According to Miller, the economy is “bumping” along.

“It’s growing a little but not much.

“I don’t think there’s huge pessimism, but also there isn’t huge optimism. I think the thing that would turn things into a positive nature would be some finality to what is happening in the Eurozone. With all the uncertainty there, it has hurt SA. If there’s some definitive way forward that creates stability then some of that trade will pick up and that will flow down to the rest of the economy.

“I think there is some reason for relative optimism for the remainder of 2012. The Reserve Bank cut interest rates by 50 basis points in July, which should ease repayment burdens slightly on outstanding floating rate loans. In addition, there are signs that price inflation is abating, which may provide some welcome relief to consumers for the remainder of 2012.”

TransUnion is proof of the value of data capture. South Africa is its largest operation outside of the U.S. and as well as capturing information on consumers and businesses from a credit perspective, the firm has maintained a database on almost every automobile in the country.

“We have an agreement with the original equipment manufacturers that every time they import or manufacture a vehicle here in South Africa they give us the information around the VIN number and the make model of that vehicle,” Miller says. “We then get information from dealers, from the police and other areas, to do a couple of things. One is verification of the vehicle to ensure that it hasn’t been stolen or it’s not wrecked and is now re-titled, as well as providing valuation

services - so it’s from a used car perspective.

We partner with the dealers and find out, for example, what did this BMW sell for? And we’ll actually model what the used car value should be based on the extras, mileage and all those other things.”

In April TransUnion Auto Information Solutions, the firm responsible for the capture of automotive information, developed an award-wining and innovative mobile app with the help of Business Connexion.

“The app allows dealers to punch in a registration or VIN number and find out information about that vehicle instantly as opposed to having to look it up in a guide or on the internet etc. We will be extending this service directly to consumers in the near future,” Miller says.

The app provides subscribed dealers with practically instant information about specific passenger and commercial vehicles, as well as motorbikes, giving them the information they need to make an informed buying or selling decision anytime, anywhere.

“Our core business is data,” Miller says.

“We provide lenders with the tools and data to make effective and efficient lending decisions.” END To learn more visit www.transunion.co.za www.southafricamag.com

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