Selected slides – overview of work done for Treasury 2014/5 AUGUST 2017 This presentation is incomplete without the accompanying oral commentary

We began looking at bureau data to understand key credit consumer trends PROFILE OF BORROWERS DRIVING GROWTH IN UNSECURED CREDIT UNDERSTANDING PATTERNS OF DEFAULT WHAT IS THE PROFILE OF BORROWERS WITH UNSECURED CREDIT? WHAT OTHER PRODUCTS DO THEY HAVE? HOW DO WE CHARACTERISE THEIR CREDIT JOURNEYS? WHO IS IN DEFAULT ON WHAT PRODUCTS? WHAT DEFAULT PATTERNS DO WE SEE? WHAT GOES FIRST?

Credit bureau data indicates the number of borrowers who are at least 90 days in arrears on their worst performing account across various product types % IN ARREARS (90+ days) CREDIT CONSUMERS (July 2013, Millions) July 2013 July 2012 40% 45% 19% 22% 44% 23% 6% 5% 38% 36% 17% 19% 49% 28% 7% 9% 10.8 5.5 5.5 3.2 3.2 2.5 2.4 1.7 Source: XDS data * Other includes “Retail General” or “Financial Other”

HAVE A MORTGAGE AND UNSECURED We can explore performance on all accounts. Eighty six per cent of those with a mortgage have at least one other unsecured credit product HAVE A MORTGAGE AND UNSECURED (Thousands, total = 2 063) DO NOT HAVE A MORTGAGE (Thousands, total = 14 368) 77% 66% 63% 54% 33% 30% 23% 30% 20% 20% 19% 17% 19% 16% 8% 7% 1% 1% Source: XDS data Note: Unsecured loans include microloans, personal loans, credit cards, retail apparel, retail furniture, retail general, student loans and financial other Note: Pies: Red segment shows proportion in arrears on product that makes up segment, yellow shows arrears on any other credit product

HAVE A MORTGAGE AND UNSECURED With regard to performance, arrears levels clearly indicate distress. For those with mortgages 5% are in arrears on the mortgage and a further 16% are in arrears on at least one other credit product. In the case of borrowers with unsecured credit the proportion is 48% HAVE A MORTGAGE AND UNSECURED (Thousands, total = 2 063) 16% DO NOT HAVE A MORTGAGE (Thousands, total = 14 368) 5% 48% 10% 23% 16% 44% 3% 6% 13% 25% 28% 46% 10% 21% 11% 22% 22% 45% 9% 50% Not in arrears In arrears In arrears on another product % in arrears Source: XDS data Note: Unsecured loans include microloans, personal loans, credit cards, retail apparel, retail furniture, retail general, student loans and financial other Note: Pies: Red segment shows proportion in arrears on product that makes up segment, yellow shows arrears on any other credit product

A vintage analysis indicates a deterioration in loan quality MORTGAGE BORROWERS’ UNSECURED LOAN* VINTAGE ANALYSIS: DISTRESSED BY MONTHS SINCE INCEPTION (Based on a sample of 150 000 borrowers who have a mortgage) UNSECURED LOAN* OPENING BALANCE <R10,000 UNSECURED LOAN* OPENING BALANCE R10,000 – R50,000 UNSECURED LOAN* OPENING BALANCE R50,000+ % of distressed loans % of distressed loans % of distressed loans Months since inception Months since inception Months since inception 2012Q1 2013Q1 * Microloans and personal loans only Note: Due to incorrect reporting by one of the lenders, 2011Q1 is not shown here

This deterioration is visible for borrowers who don’t have a mortgage NON-MORTGAGE BORROWERS’ UNSECURED LOAN* VINTAGE ANALYSIS: DISTRESSED BY MONTHS SINCE INCEPTION (Based on a sample of 150 000 borrowers who do not have a mortgage) UNSECURED LOAN* OPENING BALANCE <R10,000 UNSECURED LOAN* OPENING BALANCE R10,000 – R50,000 UNSECURED LOAN* OPENING BALANCE R50,000+ % of distressed loans % of distressed loans % of distressed loans Months since inception Months since inception Months since inception 2012Q1 2013Q1 * Microloans and personal loans only Note: Due to incorrect reporting by one of the lenders, 2011Q1 is not shown here

Of those who got credit in March 2013 around 40% were in distress in the preceding three months HAVE A MORTGAGE DO NOT HAVE A MORTGAGE 100% 2 063 000 100% 14 368 000 Total borrowers Total borrowers who got credit in March 2013 8% 162 000 11% 1 619 000 Borrowers who got credit in March 2013 and were distressed in past 3 months 37 % 59 000 40% 645 000 100% R854 bn 100% R445 bn Total value of outstanding debt 2% R15 bn 2% R8 bn Rand value of new credit granted in March 2013 Rand value of new credit granted in March 2013 to distressed borrowers 32% R5 bn 39% R3 bn Average value granted to borrowers in distress in past 3 months R69,000 R5,000 Note: This is based off a sample of 150,000 borrowers who have a mortgage and 150,000 borrowers who do not have a mortgage and is scaled up to the total populations using the relationships found in the sample data

We began looking at bureau data to understand key credit consumer trends PROFILE OF BORROWERS DRIVING GROWTH IN UNSECURED CREDIT UNDERSTANDING PATTERNS OF DEFAULT WHAT IS THE PROFILE OF BORROWERS WITH UNSECURED CREDIT? WHAT OTHER PRODUCTS DO THEY HAVE? HOW DO WE CHARACTERISE THEIR CREDIT JOURNEYS? WHO IS IN DEFAULT ON WHAT PRODUCTS? WHAT DEFAULT PATTERNS DO WE SEE? WHAT GOES FIRST?

NUMBER OF CREDIT PRODUCTS HELD The analysis of default explored usage patterns in more detail. Almost two thirds of borrowers have more than one credit product NUMBER OF CREDIT PRODUCTS HELD (February 2015, Millions) % distribution 36% 22% 14% 10% 6% 7% 3% 2% MILLIONS OF BORROWERS TOTAL CREDIT PRODUCTS HELD Source: XDS data

(Millions of borrowers) Credit consumers have been segmented into six distinct groups based on the number of credit products held (one credit product only and those with two or more) and then by the proportion of credit products in arrears SEGMENTS (Millions of borrowers) 8% 6% 14% 1 CREDIT PRODUCT ONLY 6.5 M (36%) 18% 2+ 1 Credit products 2+ CREDIT PRODUCTS 11.5 M ( 64%) Credit product 27% 40%

PRIORITIES BETWEEN PAIRS OF PRODUCTS FIRST PRODUCT TO DEFAULT What products go into default first? Borrowers in good standing as at June 2011 with specific pairs of credit products were isolated*. It appears that borrowers who don’t have mortgages are more likely to default on retail apparel accounts first PRIORITIES BETWEEN PAIRS OF PRODUCTS (Borrowers who do not have mortgages) Of borrowers with asset finance and retail apparel account in good standing as at June 2011, 42% subsequently defaulted on their apparel account while maintaining their asset finance in good standing MATCHED PAIR FIRST PRODUCT TO DEFAULT Of borrowers with asset finance and retail apparel account in good standing as at June 2011, 4% subsequently defaulted on their asset finance product while maintaining their apparel account in good standing Note: Borrowers have at the specific pair of products in good standing as at June 2011, and they could also have other products. The analysis is up to Feb 2015

PRIORITIES BETWEEN PAIRS OF PRODUCTS FIRST PRODUCT TO DEFAULT Of the borrowers that had asset finance and a mortgage account in June 2011, 7% defaulted on their mortgage before the asset finance while 3% defaulted on the asset finance before their mortgage PRIORITIES BETWEEN PAIRS OF PRODUCTS (Borrowers who have a mortgage) MATCHED PRODUCT FIRST PRODUCT TO DEFAULT

Credit journeys are important Credit journeys are important. Ideally we would want to see deserving borrowers migrate from higher cost, typically unsecured products to better priced products over time NEW BORROWERS 2012 RETAIL APPAREL RETAIL FURNITURE MICRO LENDERS PERSONAL LOAN RETAIL GENERAL CREDIT CARD OTHER* 35% 22% 17% 10% 7% 5% 4% None Source: XDS data. Note*: Other includes: Mortgage – 2%, Asset finance – 1%, financial other – 1%

Of the thin clients how many are in arrears? COHORT ANALYSIS NUMBER OF BORROWERS (millions) PROPORTION OF BORROWERS STILL ACTIVE* AS AT JULY 2013 PROPORTION OF ACTIVE BORROWERS IN ARREARS** AS AT JULY 2013 Source: XDS data. Note: This is run off of a 1 in 50 sample * Borrowers who have an account is one that has not been closed or has been written off, handed over, lapsed, revoked, repossessed, surrendered, disputed in the last two years. ** Arrears on at least one account

The length of time that elapses between the first and second product (and subsequent products) is shorter for borrowers who are more distressed AVERAGE TIME BETWEEN CREDIT PRODUCTS BORROWERS THAT DO NOT HAVE A MORTGAGE BORROWERS WITH A MORTGAGE Months Products Products

Mortgage value (R thousands) In some cases micro loans are used to fund deposits on mortgages as LTVs decline MORTGAGES: 2012 Mortgages with unsecured loans*: 11 600 Micro loan: 4 200 Personal loan: 8 050 Mortgages: 219 111 (Unique consumers: 211 348) UNSECURED LOANS GRANTED WITH MORTGAGES* Percentage with an unsecured loan of value at least 10% of mortgage R500 – R750 R250 - R500 Mortgage value (R thousands) R20 - R250 R750 – R1 000 R1 000+ Source: XDS Note: * Unsecured loans (personal or micro loans) taken 6 months (or sooner) before mortgage granted

Things we found that we weren’t looking for: overwhelmingly negative experience of the debt review process “Also another thing, you constantly pay debt review but they don’t pay your accounts like they said when you first went to consult with them. They make a promise that they will pay every month and then instead they pay every third month, and only a little amount. And I can’t get out with them because of my credit. The only good thing is that they don’t bug you, or harass you.” Cape Town, Under Debt Review Moderator: “What do you think about debt counselling?” “You just get further and further into debt, because if you must just pay Edgars a fifty rand that is all they will pay, because my friend is in that position now and she wants to get out and she is busy with lawyers now helping her to get out. Her bond is R4500 00 a month and those people pay R1000 00 into the bond, they don’t get phone calls at the end of the month so they can sleep with ease, but in the mean time she is getting deeper into debt.” Cape Town, Indebted

Thank you Illana Melzer Eighty20 Consulting Illana@eighty20.co.za