Abil upbeat over unsecured lending amid challenges

AFRICAN Bank Investments Limited (Abil) said yesterday the unsecured lending market continued to experience a bad cycle but remained confident this type of lending would not disappear despite the challenges faced by the sector and consumers.

Abil executive director and chief risk officer Tami Sokutu said there was still room to advance personal loans to South Africans and the Abil group was not looking to expand its unsecured lending business outside SA. He said the bank had diversified its operations by opening an insurance and vehicle and asset finance channel.

“Our view is that we are in a particular cycle. This too shall pass because we are not divorced from the economic environment in SA,” Mr Sokutu said. “Our view is that unsecured lending is going nowhere, it’s here to stay.”

The unsecured lending market is undergoing a difficult period. Bad debts have increased and major lenders, including Abil and Capitec, have indicated they are reducing their exposure due to stress being felt by consumers.

Speaking at an Africa Unsecured Lending Summit in Kempton Park, on the role of unsecured lending in SA, Mr Sokutu said that despite the criticism directed at the unsecured loan market, research had shown that personal loans sustained a lot of South Africans.

He said when there was minimal growth in secured lending facilities such as mortgages and vehicle asset finance, many South Africans turned to unsecured lending.

Mr Sokutu said independent research had shown that contrary to public perception that personal loans were used for consumption, people used the bulk of lending for extending their houses.

Some used personal loans for education. He said many South Africans struggled to get home loans and looked to the unsecured lending sector to improve their homes.

Mr Sokutu warned against the “arrogance” of people who could afford to pay for household goods with cash but who criticised those who bought on credit. He said the reality was that not everybody could afford to buy household goods such as a fridge with cash.

Mr Sokutu said Abil would remain committed to unsecured lending, although it was reducing risk by cutting down on the loans it issued. He said Abil would not consider secured lending as it did not believe in repossessing a client’s asset when there was a default.

Earlier this year, Abil said the National Credit Regulator had recommended to the National Consumer Tribunal that Abil be fined R300m for fraudulent lending.

Mr Sokutu said the parties were still involved in pre-trial proceedings. No proper hearing had taken place yet to decide on whether Abil must pay the fine or not.