Lending itself to more competition
AFRICAN BANK INVESTMENTS Limited (Abil) says in its 2006 annual report that as a result of its pricing changes and based on the sales in October 2006, the total cost of credit for more than 60% of its customers had fallen by 11%. The cost of credit for the 15% lowest risk customers was set below the usury rate for 48- and 60-month loans. “The removal of the R10 000 usury limit creates the space to provide clients with loan sizes that match their financial profile and fulfil their financial requirements,” says Abil in its strategic review.
Abil says it’s been positioning itself over the past two years to take cognisance of the effect of the National Credit Act (NCA), which comes into effect in July this year. It also says it’s well advanced in preparing for the Act’s implementation, mentioning specifically its experimentation with compliant loans for the removal of the R10 000 usury limit.
Abil says the introduction of the NCA will bring with it interest rate caps that will remove some of the reputational barriers for large listed entities to enter the high-risk, high-priced end of the market. “The competitive environment is becoming more dynamic than before, with the big banks in particular starting to make their intentions about mass market lending clear.”
The strategic review adds that several small competitors may find themselves unable to operate profitably under the interest rate caps, which favour large-scale players. However, it asks: “Is the size of the market sufficient to provide space for the increase in competitors in our target market, and is there ample opportunity for the growth that Abil is targeting?”
Abil estimates the mass lending market – excluding home mortgages but including credit cards, instalment credit, personal overdrafts and microloans – to be around R72bn. It says it has about 10% of that market and the approximate growth to R86bn by 2008 will provide ample opportunity for Abil to achieve its sales growth target of 20% to 25% this year.