Banks on the back foot
Rampant credit extension sees them move to appease the SARB
SOUTH AFRICA’S banks are drawing up a code of conduct they say will govern the way they grant unsecured loans. It’s an attempt to placate Reserve Bank governor Tito Mboweni, who has described the rate of unsecured credit extension in the South African market as “madness”. The code, which could be published in the next few weeks, comes amid growing political and Reserve Bank pressure on the banks to force them to amend their credit granting procedures or face official sanction.
Banks, like other lenders, already have to contend with the impending implementation of the National Credit Act in June this year. Speaking ahead of the 2007 budget in Cape Town on Wednesday, Mboweni said an investigation was underway at the SARB into how best to implement new regulations.
Banking Association MD Cas Coovadia confirmed the banks were collaborating on a code of conduct that they hope will appease Reserve Bank concerns about rapid growth in unsecured lending. It’s likely to cover a range of factors including how call-centre agents interact with clients and the level of disclosure they will be obliged to meet before embarking on a sales pitch.
Bank lending strategies though are proving, in the short term at least, to be very profitable.
Results from South Africa’s biggest retail bank, Absa, this week highlighted the growth in consumer borrowing as a substantial profit generator. This was supported by results from Nedbank and trading updates from both FirstRand and Standard Bank.
While credit card debt in the domestic market ballooned to R41,8bn in the 12 months to the end of November, it’s relatively small compared to more developed markets. According to UBS, South African credit card debt accounts for about 3% of gross domestic product, compared with more than 20% in the US.
Collaborating on a code of conduct.