THE Banking Association of SA said it had pioneered an innovative pilot programme to see if the R18bn-R20bn of bad debt in the country can be restructured to make it repayable over some years.

The association's MD, Cas Coovadia, said this week that excluding time and effort, the banking industry had committed close to R50m in building up the infrastructure.

If the pilot project is successful, the programme will save banks from the trouble of engaging in costly and lengthy legal avenues to claim back unpayable debt.

It could also help rehabilitate the credit records of indebted consumers, he said. These were people who were in arrears and who would have otherwise gone to court, Mr Coovadia said.

Repossessions are not an ideal course of action for the banks as it is difficult to repossess and dispose of property profitably because of the bad economic environment.

Mr Coovadia pointed out that the bulk of the R18bn-R20bn of bad debt in value terms was with the banks as they were loans for homes, cars and other assets.

On the other hand, retailers had the bulk of customer numbers.

Mr Coovadia said while this was a lot of money that needed to be restructured, it was a small percentage of the total loans in the banking sector, which are over R2-trillion.

"We want to try and create a situation where those over-indebted people - if we restructure them in particular ways - can, say, over the next five years repay the debt, then we would rather do that," he said.

"There will be some people who are so far gone that they just can't be rescued over the next five years. No matter how we try to restructure them, no matter what concessions may be made on interest rates, there's no way they can manage to repay and these will be put on the court system and they will essentially be sequestrated."

Mr Coovadia said between 500 to 1000 people would be put on the pilot, which he hoped would start in the next month or two.

"While we want to pilot this . this is sort of new ground, it means significant co-operation between the entire credit industry."

On impairments across the banking sector, Mr Coovadia said he had been informed that these were going up from a low base, but that these were being managed.

He said people's budgets were under pressure as the cost of living also rose.

Absa shocked the market last week by announcing it was likely to report up to a 10% fall in earnings due to a more than expected bad debt on the mortgage book.

Asked if the problems at Absa were prevalent across the banking sector, Mr Coovadia said nothing had been raised with him that seemed to suggest a systemic industry problem.

ndzamelap@bdfm.co.za