Capitec issue highlights importance of ethics in unsecured lending

Cas Coovadia, MD of the Banking Association of South Africa. (Supplied)
Cas Coovadia, MD of the Banking Association of South Africa. (Supplied)

OVER-indebtedness among poor South Africans places strain on families, society and the economy. Adequately managing this debt is a vital concern for banks, which are mandated to extend necessary services – like credit - to the underserved; protect the deposits with which they are entrusted; and provide ongoing financial education that empowers their customers to make informed decisions.

Banks constantly engage with their consumers to implement debt restructuring measures. Some of these are provided for by the National Credit Act, while others are voluntary. 

The legislated measures include a debt review process; prescription of debt, which has expunged R9.3bn of prescribed debt as a once-off measure with ongoing monthly expunging of prescribed debt; credit life insurance regulations; limitation of fees and interest rates; and affordability assessment regulations.

The industry’s proactive voluntary measures include debt concession rules; payment holidays and moratoriums; restructuring and rescheduling of loans; debt consolidation; bank-assisted sales; bespoke arrangements with clients; and settlement campaigns. The number of consumers in good standing have increased year-on-year since 2015.

The unsecured lending market in South Africa is significant. According to the Consumer Bureau Market Report, in the first quarter of 2017 there are 24.7 million credit active consumers in South Africa.

Of these, 39.3% have impaired credit records. The number of people with impaired records has dropped since 2015 and is currently at levels last seen during the financial crisis in 2008.

Unsecured lending is a critical tool for financial inclusion - especially if managed responsibly by both lenders and borrowers.

Banks are heavily regulated and their business practices are subject to significant checks. The South African Reserve Bank (SARB) is a proactive and efficient regulator and continues to act in the interests of consumers and the banking sector.

Currently, banks grant 76.3% of new unsecured credit in the market. As a sector, we support targeted, sustainable debt intervention that balances the rights and obligations of borrowers and lenders.

Unscrupulous lending practices, whether by regulated or unregulated credit providers, must be condemned. They exploit the desperation of the poorest, exacerbating their perilous financial position and sending them into a debt spiral for mere profit.

At the Banking Association South Africa (BASA) we have noted the claims made by Viceroy Research about Capitec Bank, one of our members.

The banking regulator, SARB, has said that, according to all the information available, Capitec is solvent, well-capitalised and has adequate liquidity. The bank meets all prudential requirements.

BASA does not comment on the business operations of its member banks. The association primarily represents the industry in its engagement with stakeholders on policy matters.

We are confident that the relevant authorities will comment, once they have had the time to consider the report.

BASA is of the view that responsible and ethical lending practices are fundamental to the efficient operation of the South African credit market and industry. All stakeholders must ensure that these principles are adhered to if we are to enhance financial inclusion and broad-based, transformative economic growth.

Cas Coovadia is MD of the Banking Association South Africa. Views expressed are his own.

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