Johannesburg - Banks would adjust their approach to lending to take into account the effect of expunging adverse credit information of individuals, industry experts said yesterday as the National Credit Amendment Act came into effect.

Banks’ credit rating models were often based on historical information, which would be less detailed now. As a result they might tighten their lending criteria, KPMG senior economist Lullu Krugel said.

But “stricter lending criteria will probably be driven more by current economic conditions than the credit amnesty impact”, Krugel said.

The credit policy changes would be more important for new clients, because banks tended to retain some history of their existing clients.

Standard Bank said the removal of the adverse credit records of consumers introduced unknown risk and agreed that banks were likely to tighten their approach to risk.

“Many consumers assume that the credit amnesty will mean that it will become easier to apply for loans and to access credit,” Kevin Hurwitz, the chief executive of payday lender South Africa, said. “If anything, most credit providers will be implementing stricter credit vetting processes.”

Trade and Industry Minister Rob Davies told Parliament in February that the National Credit Amendment Bill “amends sections dealing with removal of adverse consumer credit information to allow for immediate removal after payment on an ongoing basis”.

Credit bureaus have until the end of May to remove the information on paid-up debts.

More than 1.6 million consumers benefited from the removal of adverse information from credit bureaus yesterday as the act came into effect.

Zodwa Ntuli, the Department of Trade and Industry’s deputy director-general for corporate and consumer regulation, said credit bureaus had estimated that this figure could be much higher, but only a handful of paid-up judgments had been removed because not many people had them.

Credit bureau TPN said the National Credit Regulator’s Credit Bureau Monitor for the fourth quarter of last year showed that 3.18 million consumers had adverse listings on 4.5 million accounts. It expected all these listings to be deleted.

But the payment history of consumers will remain.

Standard Bank pointed out that credit providers were not required to remove this information from their databases.

“In effect, what this means is that credit providers will not have access to the adverse descriptors in their decision making, but can effectively use their own,” Standard Bank said in response to queries.

Christoph Nieuwoudt, the chief risk officer at FNB, said the bank predominately lent to customers who already had a banking relationship with it.

As a result, FNB was confident that the removal of some credit history would not have a major impact on the bank or its customers.

“Our customers can be assured that the removal of adverse consumer information… will not have an adverse impact on their future borrowing ability,” Nieuwoudt said.

TPN indicated that of 20.64 million active consumers, 51.9 percent were in good standing and the new law would not affect their profiles in any way.

“In the case of consumers with a rich history of payment profile, credit providers and landlords have good information to make an assessment.

“It becomes more difficult to assess a consumer where there is no or limited payment profile information,” TPN told Business Report.

The credit bureau said that for consumers without much of a payment history, it would now be impossible to differentiate between those who had benefited from the credit amnesty and those for whom it had made no difference.

“The reality is that this ‘thin file’ consumer will be seen as a higher risk, negatively affecting the consumer whose profile remained unchanged,” the company said.