More on the unsecured lending market

OK, that is interesting. The story that was doing the rounds yesterday, that the central bank locally is happy that unsecured lending is slowing in South Africa, is pleasing at some levels. Bloomberg ran a short piece yesterday: South Africa Banks Slow Unsecured Loan Growth After Intervention. The trajectory has slowed from 30 percent per annum to 25 percent per annum. But cut away at the same time from a Reuters story at Engineering News to one of the Deputy Reserve Bank governors, Lesetja Kganyago suggests that unsecured lending in South Africa is too small to pose a risk to the banking sector.


He quantified () that, as you can read in the story, SA not at risk from unsecured credit – Kganyago, by saying that unsecured loans totalled 453 billion Rands by March 2013, out of a total bank assets of 3.6 billion ZAR in South Africa. Or, 12.5 percent of all bank assets are unsecured loans. Now, if ABIL have a book of close to 51 billion Rands, and Capitec have a book of nearly 28 billion Rands, that means the rest of the banking institutions amongst them have outstanding loan books collectively of 374 billion Rands. Unsecured sports lovers. Now of course, in the case of ABIL and Capitec, this is almost entirely their whole business. But for the big banks to muscle their way in to what is a lucrative business, they have all the channels, they know all their clients well.


You might recall in the Standard Bank results in March, that they had the following to say: "The impairment charge in personal unsecured lending (excluding card) increased to R2,3 billion (2011: R1,3 billion). This was a result of the increased incidence of default in the R3,7 billion domestic personal term loans book (loans to lower-income customers known as the inclusive banking book) and strong growth in the middle market segment in South Africa and workplace banking in the rest of Africa."

FNB suggested that their unsecured credit book grew by 27 percent, back when they released their results in March. It seems more "in control" over at FNB, or at least that is what I could read at the time. ABSA, well, they were under pressure, but it seemed that nobody was on the blower as much as in the other places. This is very lucrative money for banks, the business of making money by lending it to people, that is great business, provided you are able to manage "things" through the cycles.


Paul wrote a simple email to a concerned client last evening, when, as you can imagine, there was a concerned client:

"African Bank has had a bad year, and an even worse last few weeks.

Their real problem is that the big four banks are also issuing lots of unsecured credit, which is making the space more competitive. Also, the furniture sector is looking bleak, which hampers the Ellerines results.

Did you see Byron's excellent review of the credit markets, a few days ago in the daily report? Here it is:

Unsecured lending market

Chances are that they will bounce back when public sector wage increases are negotiated or social grants are increased, or the economy picks up a bit.

We are keeping a close eye on it. Our normal inclination is to ride out the short-term ups and downs, but we will let you know if we change our minds!"


So what is the conclusion? Well, whilst the regulator and the central bank is clearly worried with the way that the unsecured market has boomed in South Africa, it is perhaps too far from what could be a bubble. And from time to time, these businesses go through tough times. But hold the line.