SA got off lightly

The NCA’s a buf­fer, but tighten up any­way

Finweek English Edition - - Creating Wealth - Ana Mon­teiro

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.

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