THE South African banking sector’s unsecured credit growth continued to moderate in the December quarter and the sector remained adequately capitalised, the Reserve Bank’s Financial Stability Review shows.

The sector’s total gross unsecured credit exposure grew about 15% to R441bn in the quarter ending December 2012, from R381bn in the June quarter, according to the review, released on Thursday. It cited National Credit Regulator data.

Banks’ capital adequacy ratio as at 31 December was almost 16%, well above the minimum regulatory requirement of 9.5%.

The review focuses mainly on developments in the financial sector in the second half of 2012.

Gross loans and advances, which makes up the largest asset on local banks' balance sheets, rose by 5.3% for the six months to December.

Most categories of gross loans and advances increased, with the main growth being from other loans (10.3%), followed by term loans (10.1%) and lease and instalment debtors (6.5%).

The review said the quality of the loan books appeared to have improved as the sector’s impaired advances fell to 4.1% of the total loan book over the six months to December, mainly as a result of write-offs.

Total banking-sector assets increased by 6.9% year on year to R3.652-trillion in December.

The Reserve Bank has said in the past that growth in unsecured lending should not send markets into a panic as it does not pose a significant risk to financial stability.

The annual growth rate of unsecured lending has, in any case, been moderating since peaking at 67% in the first quarter of 2011.

Unsecured lending includes credit cards, overdrafts, personal loans and financing provided to small and medium enterprises in the retail sector.

Almost half of the banking sector’s exposure to unsecured lending as at December 31 consisted of retail revolving credit, which mainly consists of exposure to credit cards, the review reported.

The marked increase in retail revolving credit in November last year, the review showed, was mainly due to Absa Bank’s agreement to purchase the accounts and receivables relating to the private-label store cards of Edcon.

Measured over a period of 12 months, total unsecured gross credit exposure increased from 20.9% in June to 29.8% in December, mainly due to the Absa Bank transaction.

Banks’ total unsecured credit exposure as a percentage of the sector’s total gross credit exposure therefore increased from 10.2% in June to 11.1% in December, the review showed.

Compared with other categories of credit, secured credit rose at the fastest pace, at 18.2% year on year, according to the review.

The review also showed that banks active in both retail and investment banking tightened lending standards in the fourth quarter compared with the third quarter.

The percentage of retail banks that tightened lending standards during the fourth quarter of last year rose to 50%, from 31% in the September quarter, the review showed.

None of the retail banks loosened its lending standards and 50% kept their lending standards unchanged.