Further confirmation that the days of heady growth in the unsecured lending market are over came from the African Bank Investments Limited (Abil) trading update for the quarter to December, which yesterday described trading conditions in both the unsecured lending and furniture industry as “challenging”.
Investors’ concerns about the challenges facing unsecured lending are evident in the performance of the shares most exposed to the market.
Although Abil gained 1.34 percent to close at R31.80 yesterday, it is not far off its 12-month low of R28.35. The stock reached a high of R40.49 in April last year and has been on a declining trend since.
Similarly Capitec, which in a Moneyweb interview also acknowledged challenges, closed 0.48 percent higher at R197 yesterday, but is significantly off the 12-month high of R232 reached last April.
Harry Botha, an analyst with Avior Research, said there was nothing new about reports of the challenges facing the market and that investors were questioning what impact the pressure on consumers would have on impairments.
In its trading statement, Abil said it was apparent that there “is a slowdown in customers’ appetite and capacity (through reduced affordability) for credit, with the number of credit applications decreasing by 7 percent over this period”.
The challenging trading conditions have seen the bank target a 23 percent increase in advances for financial 2013. This represents a significant reduction on the growth rates of 35 percent and 40 percent achieved in financial 2012 and 2011, respectively.
“Abil’s exposure to sectors that are currently experiencing labour volatility is limited, with its exposure to platinum and agriculture less than 3 percent and 1 percent of advances, respectively,” the board said.
The bank had increased its bad debt charge in both of these areas and noted that they were “substantially higher” than on the overall portfolio.
“The industrial action, while disruptive to the economy, has also resulted in substantial wage increases in those sectors of the economy. The overall impact of the labour unrest and potential retrenchments will become clearer over the next few months.”
The weaker performance in Abil’s retail division was in line with the recent trading updates released by the major retail groups.
Abil’s cautious outlook follows a period of surging growth in the industry since 2007, which produced exceptional rates of profit growth for market leaders Abil and Capitec.
In recent years, the major banks moved into the market in a bid to get a share of its high margin growth. However, towards the end of last year industry regulators, and in particular the National Credit Regulator, expressed concerns that industry growth was being spurred by reckless lending.
In financial 2012, FNB posted a 22 percent hike in unsecured lending, which chief executive Michael Jordaan said was a “defensive move” to protect its customers from aggressive efforts by microlenders.
“As a responsible lender we are not concerned in terms of our overall balance sheet, but the rate of growth is not necessarily comforting and is not sustainable,” Jordaan told Business Report last year.
Yesterday Jordaan referred to the joint statement by the Minister of Finance and the Banking Association of SA, in which the banks undertook to improve responsible lending and prevent households from being caught in a debt spiral.
Jordaan said that it was now time for the banks to give effect to this undertaking “which we fully endorse”.