Figures the regulator provided to MPs this week indicated that the total value of unsecured loans by the third quarter of last year had risen by 53% to R101bn from the previous year. This represented 8% of all lending, an increase from 5,7% in 2010.
As at September last year, unsecured lending represented 21,45% of all new credit, compared to 7,75% in December 2007.
National Credit Regulator acting CEO Nomsa Motshegare described the growth as "alarming", and said the regulator had met individual banks, the association, the Treasury and the Reserve Bank, which plans to undertake a study to ascertain what is going on. MPs from across the spectrum said Parliament had to tackle this problem.
Motshegare said the response from credit providers had been low or nonexistent. She ascribed the trend to the fact that banks found it less profitable to grant mortgages so had increased access to credit, which earned a higher interest rate.
However, Banking Association of SA CEO Cas Coovadia defended the banks, saying most of the unsecured lending was to existing clients with an established credit record.
"Banks are absolutely clear that there is a demand for unsecured lending and they are meeting this demand within the conscripts of the law and in a responsible way that ensures that they assess the customer's ability to pay," Coovadia said. There was no concern that unsecured lending was getting out of control and becoming risky.
He conceded that the property market had been tight, noting that it would be unwise for banks to engage only in mortgage lending and not look for alternative sources of funding in the present environment. Banks were also having to change their business models in the light of anticipated changes brought about by the implementation of Basel 3, which was likely to make long-term lending "extremely difficult".
NCR chairman Trevor Bailey said the shift from housing lending to consumer credit was "not surprising" given the growth in mortgage arrears and the contraction in the granting of housing loans.
Also of concern was the fact that 75% of unsecured credit granted by banks consisted of loans of more than R15 000 and more than 60% of the loans went to people earning less than R10 000 a month.
Anecdotal evidence suggested that borrowers were using unsecured credit to finance consumption and repay other debts.
Motshegare said recent court judgements had weakened the NCR's ability to regulate the process of relieving debt stress and that amendments to the National Credit Act would be necessary to address them. The Department of Trade and Industry was working on amendments to address these gaps.
Another plan was to establish a fidelity fund to assist consumers with high court litigation costs.
Source: Business Day via I-Net Bridge
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