TransUnion Consumer Credit Index Shows Credit Health Stable in the 4th Quarter
Index Tracks Consumer Credit Health; Growth in distressed borrowing moderating
Johannesburg, 20 November 2012 - TransUnion, a global leader in credit and information management, today released the fourth quarter results of the TransUnion Consumer Credit Index (CCI). The CCI increased to 49.9 in Q4 2012 from 49.2 in Q3. The rise in the index reflects some stabilisation in consumer loan impairment rates and a moderation in the growth of revolving credit facilities used by households to supplement monthly income.
While the trends in loan repayment and distressed borrowing are encouraging, the data indicate that there are lingering financial pressures on households and consumers that present potential risks heading into 2013. “Notwithstanding these important risks, overall credit affordability conditions do not appear to have worsened materially in Q4 and as a result, consumer credit health has remained relatively stable”, said Geoff Miller, TransUnion CEO. Miller also pointed out that debt service costs appeared to be stable, adding that this had been aided partially by a Reserve Bank interest rate cut in July and the relatively moderate pace of overall household borrowing at a national level.
The index and its sub-components currently indicate that the risks to South African consumer credit health are fairly balanced. “The index is very close to the neutral 50.0 level and there is a sideways trend in play. Most of the index sub-components are exhibiting relative stability. Overall credit market distress does not appear imminent, but nor does credit health seem to be improving”, said Miller.
Miller added that credit providers will need to remain vigilant, since overly robust lending could begin to push more consumers into a position of deteriorating credit health. “It is important to remember that South Africa is not one household, but millions of households. Within the broader view of consumer credit health, one must bear in mind that different households or groups of households may experience very different financial challenges in meeting their debt obligations”.
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.
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. “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 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 more than 32 countries around the world.www.transunion.co.za.