JD Group had put more emphasis on the accuracy of credit affordability calculations to avoid reckless lending, it said on Friday, after its credit sale acceptance rate across its furniture chains fell 2 percentage points in the six months to December last year.
However, the unsecured loan book ballooned to R2.2 billion in the six months from R1bn last June. The overall loan book increased by 30 percent to R9.5bn in the period.
JD Group chief financial officer Bennie van Rooy said that because lenders were under scrutiny by the National Credit Regulator (NCR), the group had put more emphasis on the regulator’s credit requirements and had made sure that it complied to avoid reckless lending.
This follows reports that African Bank Investments Limited (Abil) might face a R300 million fine for reckless lending. According to Bloomberg, the NCR requested that the tribunal impose the fine after it found that loan agents at an Abil branch in Dundee in KwaZulu-Natal had colluded with customers to lower lending standards in exchange for cash.
Van Rooy said although the company was extra careful, he could not rule out any discrepancies in application processes as JD Group served about 1.3 million customers.
The retailer owns brands such as Joshua Doore, Barnetts, Russells and HiFi Corp, among others. It also runs a separate consumer finance service for its customers.
“The unsecured lending book has grown to R2.2bn over the last two years and provides the group with a valuable source of diversification away from the secured furniture retail loan environment,” the retailer said last week.
Retail analysts cautioned that JD Group’s unsecured loan book had almost doubled.
Kagiso Asset Management equity analyst Simon Anderssen said the group’s consumer finance division was growing fast, as was evidenced by its unsecured loan book doubling over the six-month period.
“Despite this strong growth, the group is adopting a more cautious approach by decreasing the value of loans granted,” he said.
Daniel Isaacs, an analyst at 36One Asset Management, said the increase in the loan book was a “massive jump”.
To maintain its cautious approach to personal loan credit extensions, JD Group has limited unsecured loans to a maximum term of 24 months and to a maximum loan value of R25 000.
Van Rooy said the retailer was more cautious and that its first point of call was to sell furniture loans to customers before selling unsecured loans.
He said the retailer was not trying to chase away unsecured loans, but was only leveraging off existing customers.
He added “It was correct that the number has doubled but it came from a very low base, which needs to be taken into account.”
In December 2011 JD Group had about R500m in unsecured loans and six months ago about R1bn. The figure is now R2.2bn.
Van Rooy said it would not double in the next six months.
“It is expected to start to slow down; we do not expect the book to grow by more than R1bn in the next six months. It will probably grow to less than R3bn at the end of the financial year in June,” he said.
JD Group said it wanted to focus on customer retention.
“We want to convert our existing customers to our own personal book. At this stage, of our total customer base, 50 percent have a personal loan elsewhere. We have about 1.2 million credit-active customers; of those about 600 000 have an unsecured loan somewhere.”
NCR company secretary Lesiba Mashapa said: “The National Credit Act allows credit providers to grant credit to consumers to buy furniture and for other purposes. In doing so, credit providers are required to lend responsibly and consumers are also required to borrow responsibly.”
Mashapa said credit insurance was a critical component of the cost of credit and must be offered to consumers at a cost that was reasonable and must have regard to the risk and liability of the consumer.
Van Rooy said collection periods now took longer and often resulted in the book growing exponentially. “But as long as the collection rate stays at the same level, then we are comfortable.”
He said if a furniture loan was less than what the customer could afford, then the retailer tried to sell unsecured credit to the customer.
JD Group rose by 0.95 percent to close at R41.50 on Friday.