Second Quarter Decline in TransUnion Consumer Credit Index Indicates Rising Retail Sector Risk
Impaired Accounts Continuing to Rise Sharply; Consumer Credit Health Deteriorating
Johannesburg, 28 May 2013 - TransUnion, a global leader in credit and information management, today released data reflecting a sustained deterioration in consumer credit health. The TransUnion Consumer Credit Index (CCI) declined to 43.6 in the second quarter of 2013 from 43.8 in the first quarter of the year.
According to TransUnion, the fall in the CCI reflects escalating consumer loan impairments and sustained growth in distressed borrowing, both indicators of rising household financial stress. The CCI has fallen sharply in the first two quarters of 2013, averaging 43.7, close to the average of 42.3 during the four quarters from Q4 2007 to Q3 2008, a period of significant deterioration in consumer credit due to over-indebtedness and the global financial crisis.
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.
TransUnion Africa President, Geoff Miller, said that consumer credit health is declining and that consumer markets are becoming more vulnerable. “Consumer credit health has now been deteriorating for four straight quarters and the risk of deterioration in the credit cycle has risen materially. Credit-sensitive retail sectors need to become increasingly vigilant to the risks this trend poses to their business.”
The CCI also shows that household cash flow remains weak. “Price inflation resulting from Rand weakness continues to offset the positive effect of income growth. Given the trends in impairments and distressed borrowing, many households are likely experiencing negative cash flow,” said Miller.
These trends may have a material impact on consumer spending patterns for the remainder of 2013 and into 2014. Miller pointed out that the retail sector is already experiencing slower growth in sales volumes, and in some segments of the market, sales volumes appear to be falling. “The trend in loan impairments suggests retail markets may come under increasing pressure in the months ahead. To the extent that households are able to make monthly repayments, we anticipate that in many instances this will only be made possible by curtailing non-essential purchases.”
Miller added that prolonged historically low interest rates had been both a positive and a potential negative. “On the one hand existing debt servicing costs have been kept low, allowing many previously indebted households to reduce their debt to more sustainable levels. The other consequence, however, is that low interest rates can encourage unsustainable borrowing habits and also create consumer price inflation risks, raising the cost of living.”
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. “The TransUnion 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.
As a global leader in credit information and information management services, TransUnion creates economic and competitive advantages for businesses and consumers. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive solutions that leverage data, advanced analytics and decisioning technology. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion reaches businesses and consumers in 33 countries around the world on five continents. www.transunion.co.za.