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

2. 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?

3. 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”

4. 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 = )
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

5. 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 = ) 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

6. 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 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

7. 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 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

8. 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%
100%
Total borrowers
Total borrowers who got credit in March 2013 8%
11%
Borrowers who got credit in March 2013 and were distressed in past 3 months
37 %
59 000
40%
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

9. 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?

10. 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

11. (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%

12. 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

13. 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

14. 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%

15. 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

16. 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

17. 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*:
Micro loan: 4 200
Personal loan: 8 050
Mortgages:
(Unique consumers: )
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

18. 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 R a month and those people pay R 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

19. Thank you
Illana Melzer
Eighty20 Consulting