Abil: no holiday for borrowers
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There is no “payment holiday” for you if you owe money on a loan from African Bank, and nor are you off the hook if you owe to Wetherlys, Dial-a-Bed, Geen & Richards, Furniture City, Beares or Ellerines. The furniture stores are companies that fall under Ellerine Holdings Limited – or the EHL group – which, like African Bank, is a wholly owned subsidiary of African Bank Investments Limited (Abil). African Bank, not Abil, was placed under curatorship on Sunday, although the trade of Abil’s shares was suspended on Monday.
African Bank operates mostly in unsecured lending, servicing about 3.2 million of the country’s low-income earners. The bank offers personal loans of between R500 and R130 000 and repayment terms of between three and 60 months, as well as consolidation loans and credit cards.
In November 2012, the bank started offering investment accounts, and it holds R101 million in retail deposits.
If you have deposited money in African Bank, you have full access to your money in the ordinary course of business – and you should have no fear of losing it, Gill Marcus, the governor of the South African Reserve Bank (SARB), says.
“Retail depositors represent less than one percent of African Bank’s creditors. We are therefore able to make an unequivocal commitment to all existing retail depositors that their money is safe, and that they can continue with African Bank as their bank without fear that their deposits will be frozen or lost,” Marcus said on Sunday when announcing that the bank was being placed under curatorship.
The problems that have beset the bank are, in the regulator’s view, “largely specific to its current business model, which does not include a diversified set of products and income streams, nor does it offer transactional banking services”, Marcus said. This has made African Bank and the Abil group “uniquely vulnerable to a changing or challenging business environment, such as currently prevails”.
You should not have any worries if you bank elsewhere. Tracy Brodziak, the head of research and a portfolio manager at Old Mutual Equities, says the big four banks (Absa, First National Bank, Nedbank and Standard Bank) are strong and well capitalised.
“We are entering a rising bad debt cycle, but they are different [from African Bank] – they’ve made provision for bad debt, and year-on-year have been pulling back from unsecured lending, so they will be fine,” she says.
Reaction to African Bank’s curatorship has been mostly favourable; however, suggestions that the bank engaged in reckless lending are widespread.
Stephen Logan, an attorney who specialises in credit law, says the bank’s huge number of bad debts points to the likelihood of reckless lending. “It is highly likely that African Bank either did not do adequate affordability assessments or lent to people despite their impaired credit records,” Logan says.
He says that since the SARB has bought the bank’s bad debt, “the question is whether the National Credit Regulator (NCR) will now do a thorough job of auditing African Bank to determine which loans are possibly reckless and, if it finds such cases, then launch an application to the National Consumer Tribunal (NCT) to have those loans declared reckless”.
Lesiba Mashapa, the company secretary at the NCR, says the regulator cannot comment on the possibility of an audit, since it has yet to meet with the curator. Reckless lending is a “complex concept”, he says.
If a credit provider fails to do an affordability assessment before advancing credit to you, the credit provider could be guilty of reckless lending. But if you were not entirely truthful when applying for credit, you have no grounds to bring a charge of reckless lending against the credit provider.
Only a court can declare a credit agreement reckless. But if the recently published draft National Credit Regulations come into effect, the regulator will be empowered to apply to the NCT to have a loan declared reckless, to revoke a credit provider’s licence and to issue fines.
Andrew Canter, the chief investment officer at FutureGrowth Asset Management, says there’s a distinction between reckless lending and irresponsible lending.
“Reckless is a legal question … ‘irresponsible’ is a value judgment, and based on what we were seeing in the unsecured lending market – anecdotal stuff, macro data – plus Abil’s opacity on how money was being used by consumers, we were happy to say what was happening was irresponsible,” Canter says.