New Powerful Index Tracks Consumer Credit Health; Helps Forecast Consumer Spending
Johannesburg, 28 Feb. 2012 - TransUnion, a global leader in credit and information management, announced today the release of the TransUnion Consumer Credit Index (CCI) and results for the first quarter. 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.
First quarter results for South Africa show that the CCI has reversed its steady decline since the latter half of 2010, increasing to 55.7 from 51.2 in 4Q2011, reflecting a more rapid improvement in consumer credit health. Credit health refers to the ability of consumers to service existing credit obligations within the constraints of monthly household budgets.
To be 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.
The breakdown of the index results also show that loan repayment rates are improving, despite the strong recent surge in unsecured lending. “This reflects the positive influence of the recovery in real income growth after the pressures on household budgets in 2011,” said Geoff Miller, CEO TransUnion Credit Bureau. “Meanwhile, household debt servicing costs remain low, aiding consumers in paying off existing debt.”
However, credit card utilisation, a proxy for distressed borrowing, remains elevated, suggesting that consumers with access to these facilities remain under some budget pressure. This budget pressure is likely due to persistent consumer price inflation. Statistics South Africa’s most recent consumer inflation report showed the consumer price index (CPI) increased in January 2012 by 6.3% year over year, above the Reserve Bank’s upper target limit of 6%*.
“The CCI shows that while overall consumer credit health is improving, the price inflation environment remains a lingering risk to household budgets should nominal income growth slow in the months ahead,” said Miller. “However, the sharp rise in the CCI in the latest quarter does indicate that, for now, price increases are being offset by rising nominal income growth and consumers taking responsibility to pay off debt.”
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 Geoff Miller. Preliminary analysis also 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 here <ADD LINK>.
*Statistics South Africa - http://www.statssa.gov.za/publications/P0141/P0141January2012.pdf
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 25 countries around the world. www.transunion.co.za.