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Unsecured lending is up drastically since 2013

Published Sep 11, 2017


JOHANNESBURG - More South Africans are accessing the consumer credit market with first quarter figures showing that there were 24.7 million credit-active consumers - up 1.6 million in only two years - and that unsecured lending has grown to levels last seen in 2013, which poses an indirect negative for secured lending in the country.

This is according to a research note released by rating agency Moody’s on Friday.

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However, while the rating agency has noticed an up-tick in access to credit, it said there are still less than 2million mortgages in the country.

Antonio Tena, a senior analyst at Moody’s, said that any weakness in South Africa’s secured loan performance over the next 12 months was expected to be limited, given the strong lending criteria in place, but it expects a moderate rise in mortgage-related non-performing loans.

“Despite improvements in unsecured lending performance, the credit risk is significantly higher versus secured lending, with the proportion of outstanding unsecured loans classified as non-performing loans at 17%.”

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“Although the transactions we rate in the South African market correspond to secured lending (residential mortgage-backed securities and car loans), uncontrolled growth of unsecured lending may have negative implications for the performance of secured lending, as the overall indebtedness of households would increase,” Tena said.

Earlier this year, audit firm PricewaterhouseCoopers in its analysis on the performance of the big South African banks noted that mortgage portfolios continued to show sluggish levels of growth in the domestic retail sector with combined residential mortgage advances growing 1.7% in the 2016 financial year compared to 2015.

The analysis found that: “This trend - one we have persistently observed - continues to reflect a slowing in consumer credit appetite for residential mortgages given the pressure on household balance sheets, on the one hand, and potentially amplified by strategic supply-side decisions on the part of the major banks to direct lending activity to other asset classes.”

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Criteria tightened

Moody’s research found that borrowers with weaker credit profiles, defined as those with a monthly salary lower than R15 000, represented almost 10% of mortgage lending during 2007.

However, following the tightened underwriting criteria, they now represent less than 2% of origination, as of the first quarter of this year. The mortgage loan market in South Africa is estimated be worth in excess of R850 billion.

Renier de Bruyn, an investment analyst at Sanlam Private Wealth, said the global financial meltdown nine years ago had a particularly significant impact on the home loan books of South African banks and that the unsecured credit crisis led to the collapse of African Bank.

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“The search for higher-yielding loans and the impact of the National Credit Act, which allowed for the granting of larger and longer-term unsecured loans, fuelled the growth of unsecured loans.”

“With the quality of the loan books having improved, consumers de-leveraging over the past few years and the banks’ balance sheets strong, they’re well positioned to re-accelerate credit growth as soon as confidence in the economoves.

"We’ve already heard noises from Absa that it is considering relaxing its credit-granting criteria now that Barclays is no longer the controlling shareholder,” De Bruyn said.


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