Banks on the back foot

Ram­pant credit ex­ten­sion sees them move to ap­pease the SARB

Finweek English Edition - - Openers - BRUCE WHIT­FIELD

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.

Cas Coova­dia

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