IT IS remarkable how some individuals can latch onto statistics that suit their particular agenda. Three months ago, something akin to hysteria was invoked by figures that showed major growth in unsecured credit, which includes micro loans as a major component. The bogeyman of vicious lenders chasing poor borrowers seemed to be upon us. Well, now we know the fears were rubbish.
The stats that got some excited were for the fourth quarter of last year. Unsecured credit ballooned 25% compared to the previous quarter and 57% compared to the previous year (though still accounted for less than 10% of all lending). This, said Higher Education Minister Blade Nzimande, among others, foreshadowed a major crisis within our banking industry comparable to the subprime crisis.
I said at the time that it was a stupid thing to say, both because it was irresponsible for a senior politician to question the stability of the banking system on such shaky grounds, and because it mis-characterised the reasons for the growth. And now statistics are out for the first quarter of this year to prove it.
The latest figures show a dramatic reversal. New unsecured credit granted actually fell 17,02% compared to the previous quarter. The annual growth figure for unsecured credit lending is now 31%. All forms of credit granting fell in the first quarter, including mortgages (down 16%), showing it is not just the effect of the Christmas silly spending season. New credit as a whole fell 12% compared to the previous quarter, but was 18% up from a year ago.
Nzimande will hopefully be stunned into silence by the latest figures. But there are a few things that wiser commentators may want to say.
First, the fall in credit growth is not a good indicator for the economy as a whole. Credit is one way that consumers signal their confidence, and it is also a major driver of final demand in the economy. Quarter four of last year now looks to have been a particularly strong quarter. We may take solace from the fact that quarter one was still 18% up from the same period last year.
The figures show that there is a structural shift happening as banks grow unsecured lending ahead of home loans and asset finance (though there was a pickup in the proportion of asset lending in the first quarter). This is partly because unsecured lending is more profitable, and because of new regulations that discourage banks from taking on long-term assets like 20-year loans. While the mandarins of global finance clearly believe this is a good thing because it lowers one form of risk in banks' balance sheets, I have my doubts. Asset finance - whether for homes, cars or anything else - is a healthier form of borrowing for consumers, because assets are usually productive.
Unsecured lending is too easily used to finance consumption rather than anything that may offer a future return.
Those who might see the figures in a more negative light are shareholders. Bank share prices are pricing in major growth, and while they are down 5% from their record highs last month, they're still a good 14% above the highs of 2008. The fourth quarter certainly seemed to justify strong prices, but the first quarter should provide pause for thought. Consumer spending figures for April were decidedly weak with growth of just 1%. Figures for May are due on Wednesday, with economists expecting 6% growth. Even that hardly justifies much excitement about banks. If Wednesday disappoints, expect some weakness.
The banks are all currently finalising their figures for the first six months of the year and they will, with the exception of Absa, be looking strong.
Those concerned with the social effects of lending may breathe a sigh of relief that the rate of growth of unsecured lending seems to have slowed. I've argued that such concerns should be tempered by the much tougher regulatory environment for lending compared to the last genuine crisis in micro lending in the early 2000s. The debt trap consumers ended up in then is much more difficult to get into now. While we should guard against abuse, unsecured lending is a financial service that we should be pleased is being made available to more South Africans.
What does worry me, though, is the declining prominence of mortgage lending. It will make home ownership more difficult and hurt fixed-investment spending. That could have social and economic consequences as serious as the micro loan debacle of a decade ago.