SA banks ease pace of unsecured lending

The market for unsecured loans, which are not backed by collateral, has grown rapidly in recent years.

Reserve Bank Governor Gill Marcus. Picture: AFP.

JOHANNESBURG - South Africa's banks have cooled the pace of unsecured lending amid fears of rising impairments from weak growth in the continent's top economy, central bank data on Monday showed.

The market for unsecured loans, which are not backed by collateral, has grown rapidly in recent years as the country's leading banks such as Standard Bank joined niche lenders African Bank Investments and Capitec Bank Holdings in chasing their higher margins.

Unsecured credit rose by nearly a quarter in March, to 453 billion rand ($47 billion), from a year ago, the Reserve Bank said, easing back from a peak annual growth rate of 30 percent in November 2012.

The central bank repeated that levels of unsecured credit, accounting for over 12 percent of total banking assets in the economy, were still too small to pose a risk to the wider South African financial system.

But supervisors from the central bank have "engaged" with selected banks on the high growth rate of unsecured loans and continue to monitor the segment for any potential risk, Deputy Governor Lesetja Kganyago told reporters at a briefing.

Analysts and investors have been increasingly worried African Bank Investments and Capitec Bank Holdings could be hit by a wave of souring loans.

African Bank, which specialises in unsecured loans to low-income borrowers, posted a 26 percent drop in first-half profit this month and wrote off 445 million rand of bad loans, sparking a rout in its share price.

The Reserve Bank said that, overall, impaired advances fell to 4.1 percent of gross loans at the end of December 2012, from 4.7 percent a year earlier. It did not strip out the figure for unsecured loans.

Growth is slowing in Africa's largest economy due to weak global demand and unemployment levels stuck above 25 percent. Despite the tough climate, household debt averages more than three quarters of disposable income.

"Generally speaking, there is stress in the market in this specific segment and in this business line and it's obvious from the increased impairments and the pain that some smaller banks are taking from this," said Moody's senior analyst Nondas Nicolaides.

"For the bigger banks, although we will see increased impairments in this business line, their overall impaired loans to total loans is actually trending down, so it doesn't make a big difference."

The central bank said it was still comfortable with the levels of unsecured credit in the market.Retail unsecured credit exposure to gross credit exposure was 3.9 percent in March 2013, from 3.5 percent a year earlier.

For the "big four" banks - Standard Bank, FirstRand, Absa and Nedbank - a big part of unsecured exposure is to middle-income earners, who are usually existing clients.

Capitec shares closed 3.7 percent lower and those of African Bank lost nearly 3 percent.

The National Credit Regulator, which also monitors credit extended by non-banking institutions such as retailers, has been holding workshops in low income areas encouraging those drowning in debt to get help.