Johannesburg - Banks that expose themselves to unsecured credit extension do not only put themselves in danger but also hold a threat to the country with this type of “irresponsible action”, the Freedom Front Plus said on Monday.
“We will be requesting that banks explain about credit being extended too easily,” parliamentary spokesman Anton Alberts said.
“It does not only create a vortex for the public who fall into the debt-trap, but also holds negative consequences for the country's economy as it is taxpayers' money which now has to rescue the situation.”
He said a good example of this was African Bank.
On Sunday, Reserve Bank Governor Gill Marcus said embattled African Bank has been placed under curatorship.
“The first important measure has been the conclusion reached by the Registrar of Banks and the decision by the minister of finance to place African Bank under curatorship with effect from 4pm today, (August 10, 2014),” she said at the time.
“African Bank Limited board has, after due consideration, advised the registrar that it does not oppose curatorship and has taken the appropriate resolutions to facilitate the process.”
Tom Winterboer was appointed as the curator and would be assisted by a team of experts, she said.
In a six-month period to March 2014, Abil posted a headline loss of R3.1 billion.
Alberts said it was clear for a long time already that Abil found itself in trouble.
He said that in the past when banks had to report to the parliamentary portfolio committee on trade and industry about their financial states, it was clear that the bank was “hugely exposed to the extension of unsecured credit extensions”.
“The FF Plus will request the committee to have measures instituted to ensure that better oversight is put in place with regards to the extension of credit,” he said.
Meanwhile, the Association for Savings and Investment SA (ASISA) said the exposure of collective investment scheme (CIS) investors to African Bank was not big enough for panic.
ASISA CEO Leon Campher said the exposure of local equity and fixed interest portfolios to African Bank stock and debt instruments was minimal.
“Since equity portfolios are priced daily, the unit price you see today has already factored in the decline in the value of the African Bank share price,” he said in a statement.
“Therefore there is no point in selling your units now in reaction to the developments at African Bank.”
In the case of the 15 money market portfolios that hold African Bank debt instruments, the total exposure was only 1.9 percent of assets under management within these portfolios.
Campher said fixed interest investors should avoid knee-jerk reactions and remember that they invested for a high yield return, which would not be materially affected by the challenges facing African Bank.