[Debate] (Fwd) Uh oh, credit-addicted SA masses outed by ratings agencies, Unisa

[Patrick Bond]

(The SA economic 'miracle' talked about five years ago is explained: 
high and rising consumer debt. The unsecured part is serious, the 
'experts' say, but if Erwin Rode is correct that the housing market is 
still to suffer a 25-50% crash in real terms, then the secured credit is 
no help either. When the red line below departs from the green and the 
dotted lines, and when housing prices level out or even fall, then it's 
sub-prime time.)






Business Day


  Researchers sound warning on SA's rising household liabilities

Liabilities growing faster than assets, with concern that credit is 
being used to fund consumption rather than to acquire assets
PHAKAMISA NDZAMELA
Published:2012/04/20 11:10:50 AM

HOUSEHOLD liabilities continue to rise faster than asset growth in South 
Africa, researchers of a new household wealth index said on Thursday.

To arrest the situation, financial services companies need to go beyond 
seeking profit and construct products that improve the asset base of 
South Africans, says the survey, prepared by insurer Momentum and the 
University of South Africa (Unisa).

This emphasises the need for financial education and comprehensive 
financial advice.

The Momentum-Unisa household wealth indices for 2011 showed household 
assets rose at an annual average rate of 13,9% between 1975 and 2011, 
reaching R6,8-trillion in 2011. Household liabilities increased at an 
average annual rate of 15,6% between 1975 and last year, amounting to 
R1,3-trillion in 2011.

Since the economic downturn in 2008, household assets on average 
increased only 4,8% a year.

The research notes that whereas the annual rise was 24,1% between 2003 
and 2007, it levelled off to 6% from 2008 to 2011.

One of the researchers, Carel van Aardt of the Unisa Bureau of Market 
Research (BMR), said among the biggest concerns was that credit was 
being used to fund consumption rather than to acquire assets.

"The actual growth rate in liabilities compared with asset growth from 
2005 till now was much higher. A lot of people are using their credit to 
buy consumption goods," he said. "The risk of the current situation is 
that the quality of the household balance sheet is not improving. In the 
long term it could lead to a situation where a lot of households are 
both income poor and asset poor."

Among household liabilities, mortgages accounted for a 58,7% share and 
other loans for 41,3%. But in 2010 and 2011, the share of mortgages fell 
5,6 percentage points, while that of other loans increased by 9,2 
percentage points.

Prof van Aardt said growth in unsecured lending should be regulated as 
there were signs it was being used for consumption.

However, it is not clear how much of the unsecured lending is used for 
education improving assets.

Another BMR researcher, Prof Bernadine de Clercq, said part of the 
problem was subdued house prices.

The research is expected to be produced annually.

ndzamelap at bdfm.co.za

***


  S&P warns of risk of 'credit bubble' if unsecured lending growth persists

Top rating agency Standard & Poor's red-flags big increase in credit as 
South African banks seek new areas of profit
MARIAM ISA
Published:2012/04/20 07:00:28 AM

THE rapid growth in unsecured lending in SA is starting to create a 
credit bubble which could be a problem if it grows at the same pace for 
an extended period, rating agency Standard & Poor's (S&P) warned yesterday.

The remarks echo an outburst against banks earlier this month by Blade 
Nzimande, secretary-general of the South African Communist Party, who 
described unsecured lending as "reckless" and exploitative of the 
working class.

Banking regulator Rene van Wyk earlier this year launched a probe of the 
trend, which has gathered momentum as commercial banks look for more 
profitable ways of lending in the absence of mortgage demand.

Unsecured lending to households shot up by more than 35% in February 
compared with the same month last year, according to Reserve Bank data. 
That compares with overall growth in credit of about 8%.

"There are signs a bubble is forming," S&P's financial institution 
ratings analyst, Matthew Pirnie, said yesterday.

"In the short term it's not a massive issue because it is a very small 
part of balance sheets and won't affect the overall credit worthiness of 
South African banks.

"But there's no place in the world where unsecured credit has grown at 
this pace and there hasn't been a problem with it."

Mr Pirnie was speaking at a seminar organised by S&P Capital IQ, a 
subsidiary of MGraw-Hill --- a global publishing, financial, information 
and media service. S&P's Ratings Services is a separate subsidiary of 
the company.

Top officials at the Reserve Bank have voiced concern about growth in 
unsecured lending in the absence of details of what constitutes this credit.

The personal loans can be used to cover the purchase of cars and home 
improvements, as well as overdrafts and credit card debt.

"It's a very complex topic and there are lots of unknowns. If the loans 
are used to consolidate debt, that's the big worry,"Nedbankeconomist 
Nicky Weimar said.

Households in SA are still heavily indebted, although debt service costs 
have declined steadily over the past four years. They fell to 6,7% of 
disposable income in the fourth quarter of last year from 12,7% in the 
third quarter of 2008, according to Bank data.

The concern is that when interest rates start to rise, possibly later 
this year, the burden on household finances will increase.

Cas Coovadia, MD of the Banking Association of SA, said local banks were 
providing data on unsecured loans to the National Credit Regulator.

"We are not making any assumptions, we are waiting until the research is 
complete and the outcome is finalised. If there are any problems, we 
will deal with them," he said.

Official figures show unsecured lending makes up 6,2% of all lending in 
SA and about 11% of credit extended to households.

In value terms, it rose to R26,5bn in the final quarter of last year 
from R21,21bn in the third quarter, up nearly 25%.

One of the reasons for the rapid growth in unsecured lending could be 
the movement of more people into higher-income categories, which makes 
them creditworthy, but still not eligible for mortgages.

In his remarks, Mr Nzimande said the trend could place SA's banking 
industry under enormous pressure, unless drastic action was taken to 
curb this exposure.

Mr Pirnie said that one way of curbing the trend would be to tighten 
affordability testing through the National Credit Act, which had already 
set high standards for lending.

Another would be to set a maximum maturity limit on certain types of 
unsecured lending.

This could be a blow for SA's top four commercial banks, which have been 
beefing up their activity in what they view as a high-growth market, 
dominated byCapitecBank and African Bank.

In his presentation on the South African banking sector, Mr Pirnie 
emphasised that local banks were in good shape.

"On the whole, the story for South African banks is good, they are 
adequately capitalised, still have conservative regulation and still 
make good profits," he said.

isam at bdfm.co.za


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