JOHANNESBURG – South Africa’s banks are set for more pressure on their bottom line with the controversial National Credit Amendment Bill set to become law after President Ramaphosa anointed the bill. 

The piece of legislation is to provide debt relief for consumers who earn R7 500 per month or less and have unsecured debt amounting to R50 000 by suspending the debt in part or in full. 

The Treasury estimates this could write off between R13 billion and R20bn. The Banking Association of South Africa (Basa) said in a statement that by making provision for the arbitrarily expunging of debt, the act effectively prevents banks from extending responsible credit, particularly to those in low-income households. 

“Banks have a fiduciary duty to protect the savings and investments of their depositors, the workers, professionals and businesses of South Africa. Banks invest the country’s savings in productive infrastructure and employment creating commercial ventures, for the benefit of all South Africans,” Basa said. 

“Banks cannot extend other people’s money as loans – for education and entrepreneurship – if they cannot be sure these loans can be repaid.”

The association added that banks had already proactively taken steps to alleviate pressure on highly indebted households.

Basa said that in 2017, lenders expunged R30bn  in prescribed debt through a combination of existing legislation and the banks' own policies. 

Dawie Roodt, chief economist at the Efficient Group, said the extinguishing of debt granted to the poorest of the poor under certain circumstances was nothing less than the beginning of expropriation. 

“These loans are property, as much property as anything else, and is supposedly protected by Article 25 of the Constitution. What kind of message is this sending to the ratings agencies such as Moody’s and Standard & Poor’s? As the Constitution stands at the moment, there is a strong possibility that the law is unconstitutional,” Roodt said.

Recent statistics show that out of the 23 million credit-active consumers in the country, more than 42 percent are considered impaired.

Cosatu’s parliamentary co-ordinator, Matthew Parks, said the bill is not reckless as claimed by the Banking Association. 

“Cosatu urges the Department of Trade, Industry and Competition and the National Credit Regulator to move swiftly to publish the relevant regulations and announce when they will come into effect,” Parks said. 

“The banks and lenders must come to the party, embrace the progressive spirit of the Amendment Act and ensure its implementation. Both government and the private sector must engage in mass public education campaigns to ensure consumers are aware of their rights.”

South African banks are already under pressure by operating in a low growth economy and fears that Moody’s is ready to downgrade the country’s sovereign ratings. 

The big banks have recently reported subdued results with weak topline growth owing to below trend loan advances, increasing cost pressures and credit deterioration. 

The banks index on the JSE is down 18.64 percent from a 52 week high.

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