TransUnion CEO Geoff Miller
TransUnion CEO Geoff Miller

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THE TransUnion consumer credit index declined to 43.4 in the third quarter, from 44.8 in the previous quarter — reflecting a nearly three-year downward trend in the index, which has fallen from 63.6 in the fourth quarter of 2010.

Credit information company TransUnion said the fall in the index reflected deteriorating household cash flow as rising living costs and a weak job market take their toll on income security.

The report also found that the household cash flow situation may be as challenging as it was in early 2009, a recession year. The index has now spent a full year below 50-point cutoff mark separating improving and deteriorating consumer credit health.

Credit health refers to consumers’ ability to service existing credit obligations within the constraints of monthly household budgets.

TransUnion CEO Geoff Miller said consumer credit health continued to deteriorate and the trends seen in the second quarter were largely still relevant in the current quarter.

"Consumer loan defaults continue to rise, distressed borrowing has held steady, but credit card usage nonetheless remains high, and household cash flow is deteriorating. None of these trends is new or particularly surprising," he said.

Encouragingly, the index shows that distressed borrowing is not rising, but there may be other evidence from the TransUnion database that suggests some segments of the market are trying to resort to this type of borrowing behaviour.

"The demand cycle for unsecured lending is extremely robust. With defaults clearly rising and household cash flow weak, this may suggest another form of distressed borrowing not accounted for when looking only at credit card utilisation.

"This may point to lower income groups experiencing the greatest debt distress," Mr Miller said.

He pointed out that riskier conditions were causing credit providers to become more cautious in their lending practices. "Approval rates by credit grantors have slowed, indicating that they are generally applying a more conservative approach to mitigate their rising risks."

Mr Miller said that this was an important trend for credit providers since their older loan portfolios seemed to be deteriorating.

"Previously credit standards were more relaxed than they are becoming now, so this should start to reflect in better-performing loan portfolios further down the line."

The quarterly TransUnion consumer credit index 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; and quantifies the relative cost of servicing outstanding debt.

Debt judgments

The number of civil judgments for debt fell 18.1% year on year in July to 32,217, Statistics South Africa said on Thursday, and the value of those judgments dropped by 6.5% to R411.5m.

However, the number of civil summonses for debt — which is the first legal step in the recovery of debt — jumped by 5.6% year on year in July to 78,908, after declining 17 year on year to 65,729 in June.

In the three months ended July, the number of judgments fell 9.1% year on year, the value of those judgments eased by 4.7% and the number of summonses declined by 17.7%.