Consumers’ appetite for credit growing

But unsecured lending is not as big a risk as was thought, writes Phakamisa Ndzamela

LATEST National Credit Regulator statistics for the second quarter of the year show that the muchdiscussed unsecured lending made up only 9.63% of total outstanding gross consumer debt, suggesting that this kind of lending poses no threat to the financial system.

The total outstanding gross consumers debtors book for the second quarter grew 3.22% to R1.36-trillion.

Mortgage lending naturally dominated, accounting for R814.65bn. Vehicle asset financing accounted for R263bn, while unsecured credit stood at R131.31bn.

This, however, does not mean unsecured lending is negligible as it continues to grow faster than other types of credit offered by registered credit providers.

For instance, the value of mortgages granted grew 9.69% to R26.94bn quarter on quarter for the period ended June.

However, unsecured credit grew 17.55% to R25.80bn.

Clearly there is no sign that growth is slowing.

In the second quarter, unsecured credit grew 17.55% com- pared to growth of about 13% in the same period last year.

This quashes any talk of a slowdown. Although growth in unsecured credit slowed in the first quarter of this year compared with the last quarter of last year, this was a matter of seasonality.

However, the continued growth raises concerns among politicians who fear that consumers are being overindebted by such loans.

Deputy Finance Nhlanhla Nene

Minister told an International Banking Federation, hosted by the Banking Association of SA, on Tuesday that growth in unsecured lending was a matter of concern.

But if one considers the interim results of Capitec Bank (a key player in unsecured lending), the arrears to gross loans and advances slightly improved to 4.4% compared with 4.5% previously. Bankers seem to be sanguine about unsecured lending, although there is agreement that the growth is being watched cautiously.

But politicians fear more for the consumer.

Mr Nene said the Treasury and the Financial Services Board had plans to push for more consumer education about this type of lending.

Some even hold the view that high wage demands are influenced by high debt levels.

To calm regulators, there is talk that SA’s banking industry is working with the Treasury to devise a code that will ensure that unsecured credit is granted responsibly. Clearly the issue of credit is not only a matter of supply, it is driven by demand. Once consumers earn more they tend to increase their appetite for credit.

National Credit Regulator figures for the June quarter show the number of credit active customers is slightly increasing. There were 19.6-million creditactive customers at the end of June compared with 19.49-million in the first quarter, an increase of just over 100,000.

But the problem is that SA is not creating many jobs.

SA’s unemployment stood at 24.9% in the second quarter of this year. Statistics SA figures show that employment rose 0,2% or 25,000 between the first and second quarters of this year and unemployment declined by 56,000 persons, while the economically inactive population increased by 149,000.

Another problem is that the number of consumers with impaired records rose by 170,000 to 9.22-million in the second quarter compared with the first.

A customer with an impaired records refers to one who is three or more months in arrears and whose accounts have been handed over to debt collectors, or written off.

Consumers regarded as being in good standing fell by 60,000 to 10.38-million, according to the regulator.

This means nearly 50% of credit active customers are not in good standing.

A client in good standing refers to one who has not missed more than one or two instalments, who does not have court judgments for debt against him or her, and his or her account has not been written off or handed over to debt collectors.