Lend­ing it­self to more com­pe­ti­tion

Finweek English Edition - - Companies & markets - FROM THE AN­NUAL RE­PORT SIKONATHI MANTSHANTSHA

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.

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