Unsecured lending may shrink 25% – analysts
The market for loans not backed by collateral might shrink by 25% if government proposals to cap interest rates won approval, said analysts at Avior Capital Markets, who spoke with unsecured lender Capitec Bank.
“Management expects the formal unsecured credit market to shrink by about R20 billion a year due to interest rate caps,” Avior analysts Harry Botha, WJ De Vries and Bjorn Zietsman said in a note to clients.
The department of trade and industry has suggested cutting the maximum interest rate lenders can charge on unsecured credit from 32.65% to 24.78%, with the aim of reducing indebtedness among consumers.
African Bank Investments Limited, the country’s biggest unsecured lender, collapsed last year amid rising bad debts and a lack of funding.
Others operating in this market include Capitec, once African Bank’s biggest rival, and retailers like Lewis.