SYDNEY: New data released by credit bureau, illion, today as part of its Consumer Credit Stress Barometer for March 2024 shows that consumer credit stress fell (improved) in the second half of 2023 but is still 8% higher than two years ago. However, December has seen a halt to this improvement, suggesting a deterioration might be on the cards again.

“Our data shows that over the second half of 2023, Australians adapted to their new economic conditions by spending less and this has resulted in improved credit risk,” said Barrett Hasseldine, illion’s Head of Modelling. “That said, December figures saw a halt to this improvement, indicating progress may have now peaked. Unless there is a substantial cost relief for households in 2024, another decline may be coming.”

Coinciding with the moderate improvement over H2 2023, illion’s Credit Stress Barometer has also indicated higher discretionary spending by Australians and a rise in early delinquencies recently. This points to Aussies possibly becoming ‘too euphoric’ in their spending as interest rate rises have slowed, and CPI data has started to moderate.

“We don’t know for sure if there will be more rate rises, or how long rates will need to stay high for – this is not the time for euphoria,” added Mr Hasseldine. “Consumers have resorted back to spending too quickly, which is a dangerous place to be, especially if they have been using credit to service this spending. If acting appropriately for the economic conditions, consumers should be maintaining lower spending until their credit servicing costs are fully under control. Of course, that is not the way things work in real life.”

When this is combined with the fact that missed credit repayments are now 25% higher in Q4 2023 when compared to Q4 2022, and have risen 5% in Q4 2023 alone; also that in Victoria, the default risk of home loan borrowers and credit card holders has risen by near 10% year on year; and in NSW, default risk of credit card holders has risen 5% year on year; it further indicates that consumer confidence is too high.

“This unfortunate increase in default risk may have been caused by a higher debt servicing burden placed on consumers, such as from rising interest rates and large existing debts, but it also could be partly caused by the take-up of new debts to soften the immediate financial impact from rising living expenses.”

“Also the greatest warning sign of further credit stress into 2024 appears to be concentrated in Australia’s two most populated states,” added Mr Hasseldine.

“Exacerbating this credit default risk, we are now also seeing a substantial rise in early credit delinquency in Q4 2023, which may filter through to the overall default risk of Australians as we head into 2024,” said Mr Hasseldine.  “The 25% YOY rise in 30+DPD delinquency and 5% quarterly rise in Q4 may suggest that credit stress will deteriorate further.”

“We might have a consumer confidence problem – this time too confident and overexuberant,” Mr Hasseldine adds. “Our data shows that the December quarter, and the month of December in particular, saw Australia’s most substantial rise in confidence in recent times, up around 10% on Q3.

“This rise in confidence has coincided with substantially higher discretionary spending by Australians. After a substantial rise in retail and household digital spending in Q4 2022 over Q4 2021 (5% and 14% respectively) we have seen another rise in Q4 2023 (3% and 19% respectively).

“Similarly, although Australians have changed their dining habits with less dining out, they are now spending more in total on food orders.  Take-away bills are up 12% in Q4 2023. In total, spending on food orders has risen 20% in 2 years with no sign of falling.”

Because this rise in discretionary spending coincides with an increase in credit delinquency, especially on consumer credit cards and home loans, it points to consumer overexuberance, and that could mean a double dip in credit stress coming our way.


About the data

The data included in this media release has been taken from illion’s fourth Consumer Credit Stress Barometer. This is compiled from the credit data from more than 18 million credit consumers in Australia. illion’s data set is widely acknowledged as being amongst the best in the country.

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