Despite this marginal upward trend, the report still marked the 11th straight quarter of credit health deterioration and it indicated that household cash flow fell to its lowest levels since early 2010.
Released on a quarterly basis to the public, the 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 TransUnion Credit Bureau with technical support from market intelligence firm ETM Analytics compiles the index.
The CCI is based on a 100-point scale, where 50.0 is the break-even level between improvement and deterioration of credit health. Any number less than the 50.0 break-even point shows a decline in credit health.
"The CCI indicates that consumer credit health deteriorated at a slower pace in Q3 2014 compared with Q2. Despite this we are now heading for three straight years of declining credit health," said Geoff Miller, CEO of TransUnion. "Millions of consumers are still feeling the pressure of tight cash flow, with household cash flow levels falling to their lowest point since early 2010. However, there is light at the end of the tunnel. While cash flow remained weak, it did not turn negative. There is also some relief in the form of slightly lower inflation, which is offsetting the current poor income growth."
Continuing on a positive note, the rate of new consumer loan defaults declined further this quarter on a year-on-year basis. This is indicative of the more prudent lending measures that have been put into place since 2013. The distressed borrowing indicator stabilised in Q3, however, it still shows that households are being forced to access more credit to supplement their budget. This indicator shows the amount of revolving credit used, such as credit cards and store cards, as a percentage of a consumer's total credit limit.
Already tight budgets have been put under increased pressure because of a rise in the benchmark repo rate in July. The South African Reserve Bank (SARB) increased this rate from 5.5% to 5.75%, resulting in an increase in the prime rate of interest from 9.00% to 9.25%. While not a large increase, this has had a negative impact on consumer debt affordability. Debt servicing costs have increased by around 6.5% in the last year across the board for loans linked to prime.
"Currently the index signals slow or no real wage growth and retrenchments in some sectors. Employee surveys reveal that perceived job security is poor and declined sharply since Q1 2014. These factors all point to increasingly difficult credit market conditions in the near future. While consumer credit distress in the formal credit sector has stabilised, there is a rising risk that informal credit channels are used by the marginalised and that credit behaviour here deteriorates more sharply," Miller concludes.
For more information, go to www.transunion.co.za.
