STANDARD Bank has warned of the "negative effects" of a rise in unsecured lending as consumers battle to repay loans in the face of a slowdown in monthly income, which economists say is worsening the plight of families as food and fuel prices soar.
Nedbank also said household debt levels were high and these, together with waning consumer confidence, could stunt appetite for credit.
Unsecured credit grew by almost 18% in the second quarter to R25.8bn, compared with the 13% increase in the same period last year.
The total outstanding gross consumer debtors book for the second quarter rose by 3.22% to R1.36-trillion in the second quarter.
Standard’s warning, made in a note last week, comes as the government has already expressed concern that banks and other credit providers could be fuelling a credit binge similar to that last seen prior to the 2008/09 financial crisis.
It led to high household debts and subsequent increased impairments, particularly on mortgages. However, bankers say impairments are falling in response to lowered debt-service costs as a result because of 38-year low interest rates at a 38-year low.
The big banks, who until recently were aggressively selling unsecured credit such as personal loans, overdrafts and credit cards, admitted last week they were slowing down the pace of granting credit.
Standard’s CE for personal and business banking, Peter Schlebusch, last week said Standard had tightened its risk appetite for unsecured credit, but had not stopped lending to qualifying customers.
First National Bank (FNB) has also tightened the granting of credit as it wanted to protect its loan book from impairments and nonperforming loans, said FNB CEO Michael Jordaan recently.
In its note, Standard — one of the top two big banks with the largest market share of unsecured credit — said consumer credit health was deteriorating.
Separately, Nedbank said in another note last week that despite low borrowing costs, consumers were expected to reduce their appetite for loans as income growth slowed, job prospects weakened and "confidence fades while existing debt levels remain high".
Standard said it was worrying that consumers were growing increasingly dependent on credit to cover their monthly expenses. With salaries increasing at a slower rate than in previous years, consumers were feeling the "pinch," it said.
"While loan repayments may be steady, high interest rates charged for unsecured loans, together with low income growth, could have negative effects," Standard said.
Although the big banks insist unsecured credit comprised about 5% of the total credit in the country, the government and the National Credit Regulator (NCR) nevertheless want tighter measures to protect indebted consumers.
Last week, the CEO of the National Debt Mediation Association, Magauta Mphahlele, said NCR statistics showed the number of consumers with impaired credit records had increased by 170,000 to 9.22-million in the quarter to June compared with the previous quarter.
A customer with an impaired record refers to someone who is three or more months in arrears and whose accounts have been handed over to debt collectors, or have been written off.
Standard said a rise in impaired accounts — when aggregate national household debt as a percentage of household disposable income was not rising sharply — suggested impairments were concentrated in high-volume but low-value loans markets, such as the unsecured market.
Ms Mphahlele said it was worrying the NCR figures showed that consumers regarded as being in good standing fell by 60,000 to 10.38-million.
"This means that nearly half of the 19.6-million credit-active consumers at the end of June were not in good standing."
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