- South Africa’s credit health improvement mainly driven by lending restrictions, not consumer recovery
- Home Loans show improvement, but Affluent segments still face financial challenges
- Record-high credit applications indicate consumer demand, met with cautious lender response
Johannesburg, 17 March 2025 – Experian’s latest Consumer Default Index (CDI) reveals a 14% year-on-year improvement, which whilst positive, is not wholly due to an improvement in South African consumer credit health, but largely the result of lenders’ tightening their lending criteria over the past 24+ months. With lenders targeting significantly fewer consumers with available cash flow to take on and effectively manage more credit, overall performance has improved due to the lower supply. One should, however, not underestimate the positive impact and importance that easing inflation and declining interest rates have on short-term consumer affordability and longer-term stability and growth.
“While the improvements we’re seeing in consumer credit health are encouraging, they are primarily due to limited access to credit rather than improved credit management. This lack of credit supply can be a veiled benefit, as it encourages consumers to live within their means, ultimately promoting long-term financial health,” says Jaco van Jaarsveldt, Head of Commercial Strategy and Innovation at Experian. “With impending potential tax increases, it is crucial for consumers to manage their budgets closely, prioritising needs over wants.”
The CDI, a key indicator of the rolling default behaviour of South African consumers across Home Loan, Vehicle Loan, Personal Loan, Credit Card, and Retail Loan accounts, presents a cautiously optimistic outlook.
The composite CDI demonstrated a positive quarter-on-quarter trend, decreasing from 4.36 in September 2024 to 4.04 in December 2024. While this improvement is typical for the fourth quarter, driven by seasonal spending, Experian anticipates a potential increase in the CDI during early Q2 of 2025, reflecting the impact of festive season and Black Friday expenditures. This cyclical pattern is important to consider when assessing the overall health of consumer credit.
Marginal growth in approval rate reflects cautious lender response
Applications received reached a record high in Q3 of 2024, indicating a strong consumer appetite for credit, which has been a consistent pattern year-on-year post-pandemic. On the other hand, the application approval rate has seen only a marginal increase, at less than a third. This is significantly less than the pre-COVID levels, during which approval rates exceeded 50% at times. This observation indicates that lenders continue to respond to demand with caution.
“The rise in declined applications underscores a more rigorous assessment of creditworthiness, likely influenced by evolving risk management strategies and prevailing macroeconomic conditions,” says Van Jaarsveldt. “Consequently, while the volume of approvals has increased, the overall approval rate has only marginally improved, indicating a potential recalibration of risk tolerance in response to the surge in demand. This cautious approach by lenders reflects the ongoing economic uncertainties.”
Home Loans, Vehicle Loans, and Personal Loans experienced the most significant year-on-year improvements in CDI, moving from 2.72 to 2.17, 3.97 to 4.37, and 10.03 to 8.78, respectively. This translates to relative improvements of 20% for Home Loans, 13% for Vehicle Loans and 12% for Personal Loans. This trend suggests that mid-to-high affluence consumers, who typically qualify for higher-value credit products like Home Loans, are beginning to see a reversal in the negative trends observed over the past two years.
At the macro Financial Affluence Segmentation (FAS) level, all FAS groups showed improvement in CDI. Notably, FAS Group 3 (Stable Spenders) and FAS Group 4 (Money-Conscious Majority) recorded improvements of 24% and 17% year-on-year, respectively.
“However, the improvements are not necessarily due to improved financial circumstances, but because consumers have not qualified for new credit to the same extent as they did pre-pandemic. This highlights the complex interplay between consumer behaviour and credit availability. Experian remains dedicated to empowering consumers with tools like Up, our free web-based app, which offers actionable financial insights and practical resources to help individuals confidently navigate their financial journeys,” concludes van Jaarsveldt.
Access Up, powered by Experian, at www.up.experian.co.za.
