A Member of Parliament has called on the South African Reserve Bank to hand over to the National Credit Regulator (NCR) all of the credit agreements in African Bank’s bad book, so that the regulator can investigate the agreements for reckless lending.
The call was made this week by Geordin Hill-Lewis, the Democratic Alliance’s shadow minister of trade and industry, following revelations in Parliament that the loans in African Bank’s bad book serve as collateral for the Reserve Bank and for that reason it could not support a blanket write-off of all these loans.
Kuben Naidoo, the deputy governor of the Reserve Bank, told members of the portfolio committee on trade and industry that the Reserve Bank’s rescue package to African Bank was “contingent on … being able to collect on a portion of … the bad book”.
Naidoo had been invited to address the committee, which is exploring debt-relief measures for vulnerable and over-indebted consumers, including “debt forgiveness” – a euphemism for a debt amnesty. The NCR had suggested tothe committee that African Bank’s bad loan book be targeted in such an exercise, and the committee had, in turn, asked whether the Reserve Bank had investigated the extent to which the loan book was the direct result of reckless lending.
The Reserve Bank had not investigated reckless lending in African Bank, Naidoo told MPs. It was not within its mandate; it was within the NCR’s mandate, he said.
The Myburgh Report, which probed the circumstances behind African Bank’s collapse and which was made public last week, looked into aspects of reckless lending, Naidoo said, but analysis of the report was for the committee.
Hill-Lewis says that while an investigation into reckless lending was not specifically in Advocate Myburgh’s mandate, granting reckless loans is, by definition, a risky, illegal and reckless form of doing business, and was therefore within the ambit of his mandate. “I understand his resource constraints, and that is why I am asking for all of the documents to be released to the NCR so that they can do their job.”
He says while he appreciates the Reserve Bank’s predicament – it must have some collateral for its loan and cannot allow the taxpayer to pay the price for the recklessness of African Bank’s management – it’s not fair to make poor, financially vulnerable borrowers carry that burden either.
“We must differentiate between reckless loans and those that are simply non-performing, but are nevertheless legitimate. The NCR needs to sift through all of the loan agreements in the bad book. This is the only way to identify the reckless loans from the legitimate ones.
“If we can filter out the reckless loans, we can achieve a significant write-off of reckless debt, which will immediately improve the financial health of many South African families. At the same time, there are more than enough legitimate loans in the bad book on which the Reserve Bank can collect and still recoup its loan,” he says.
Asked to comment, the Reserve Bank said it was up to the NCR to decide whether to and how to pursue the matter. The NCR did not respond to requests for comment.
There is no need for an amnesty when the National Credit Act provides for credit to be written off when it has been granted recklessly, Hill-Lewis says. “This is where the focus should be. There should be a massive national campaign to identify reckless lending and have those loans written off. This would be a huge blow to those in the credit industry who persistently offer credit recklessly. Such a campaign would be within the law and cannot be challenged by the credit industry.”
The last amnesty – which was an expunging of adverse information from the credit reports of consumers, not an expunging of debt – was met with huge resistance.
As for this proposed amnesty, Hill-Lewis says there are many legal impediments, but the ruling party will continue to talk about it, “because it sounds like a great election promise”.