Banking customers. Picture: THINKSTOCK

SOUTH African banks will pay for their sins when they begin to feel the effects of non-performing loans in 2013, following an increased number of unsecured loans granted this year.

Unfortunately for the responsible formal lenders, consumers are more likely to first pay off debts to informal lenders because of threats the latter can exert, said TMS30x30's banking research director Petar Soldo.

He expects the unsecured lending market to grow, although not at the same levels seen in past 18 months. There may be changes made to the present garnishee system, which will have an effect on the ability of credit providers to recover debts.

"What is harder to forecast is what will happen in the informal lending market. Unfortunately there are no reliable statistics on this market - and what tends to happen is that, as consumers can no longer access the formal credit markets, they turn to the informal markets," he said.

According to Moody's, non-performing loans stood at 4.4% of gross loans in August 2012, following an improvement over the past two years.

The rating agency recently downgraded SA's banking system outlook to negative from stable despite the sector having been voted as the world's second best by the World Economic Forum.

According to Patrice Rassou, head of equities at Sanlam Investment Management, rating agencies have not given local banks enough credit for being well run and managed.

Looking ahead to the new year, he said local banks are trading at around fair value with good growth visibility.

Competition in the vehicle finance market is expected to go up as demand surges. New vehicle sales grew 7.3% year on year in November, to 53134 units, according to Naamsa figures. Domestic sales for the year to date are 9.8% ahead of the first 11 months of 2011.

* This article was first published in Sunday Times: Business Times