SA got off lightly
The NCA’s a buffer, but tighten up anyway
THE WORLD IS REELING from the fallout of a broad credit crisis, essentially caused by financial institutions in the United States granting mortgages and many other types of credit to non-creditworthy consumers who subsequently couldn’t keep up with their repayments.
Back home in South Africa consumers are certainly in pain – but not nearly as much as their US counterparts. SA’s National Credit Regulator CEO Gabriel Davel says that’s due to the National Credit Act (NCA), which outlawed many of the lending practices that got the US into the credit mess it’s currently in.
A lack of affordability assessments, having agents and brokers originating loans and giving consumers “teaser” rates – where a low interest rate is initially set for repayments, only to be increased to a level the borrower could often no longer afford a few months later – are all practices that characterised the US’s credit crunch and are all illegal under the NCA.
Securitisation of mortgages – where they were created and sold on to investment funds, with the mortgages used as collateral – was a major component of the demise of many of the US investment banks. As consumers defaulted on debt repayments and house prices started falling, the coupons on mortgages weren’t paid.
The securitisation market is very small in SA, says Davel, although representatives from the US’s biggest securitised lender – the Federal National Mortgage Association, or Fannie Mae as it’s better known – have been in SA to promote the use of securitisation since the late Nineties.
The NCA couldn’t have come sooner: SA’s household debt, sitting at 76,7% of disposable income for the three months to end-June, is just off its all-time high of 78,2% for the first three months of this year.
Retailers and other lending institutions turned on the credit taps in the lead-up to the introduction of the NCA, which came into effect in June last year. Much of the debt accrued then has yet to be worked out of the system or paid off, says Davel. However, the NCA “did curtail some of the growth at the end of the cycle. It prevented the problem from getting worse.”
The regulator’s most recent Credit Bureau Monitor, based on quarterly reports that SA’s credit bureaux are required to submit to the NCR, shows there are 17,1m active credit consumers in SA with an average of three accounts each. Of that total, 61,6% (or 10m) of consumers were up to date with repayments as at March 2008. That’s a slight drop on the 62,4% of consumers who were up to date with repayments at end-December 2007.
Still, that means 6,6m consumers have impaired records, when three or more of their repayments are in arrears or they have adverse listings reflecting court judgments or administration orders.