Unsecured lending in historical context

Transcription

1 Unsecured lending in historical context Stuart Theobald, CFA Africa Unsecured Lending Summit 22 August 2013, Johannesburg

2 The early history of unsecured lending The first microloan crisis The recovery phase The new boom The politics of unsecured lending A new crisis or not?

3 Early history 1992: exemption to the Usury Act was granted Intention was to widen access to financial services Removed interest rate cap on <R6 000 loans, <36 months By 1999 microloan book grown to R15bn, maximum raised to R Driven by non-bank lenders

4 MFRC No surprise: abuse was rife Exemption framework meant zero regulation All lenders had access to Persal the civil servant payroll almost risk free In 1999 the Microfinance Regulatory Council was established as voluntary self-regulation By then the stresses were building

5 Apr-94 Jan-95 Oct-95 Jul-96 Apr-97 Jan-98 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Rate peak 1998 E Asia crisis led to a spike in interest rates Banks default rate took off Figure 1: Interest rates and bad debt in South Africa source: Inet Bridge/Leriba Prime interest rate Bad debt charge as a % of advances

6 First crisis A small bank crisis unfolded in late 1990s Term mismatched balance sheets Run on certain small banks In 2000 government acted aggressively against microlenders and axed access to Persal Saambou, Unifer and African Bank were major lenders amid many small players Industry book was R14bn, mostly Persal based

7 Crisis strikes First to be hit was Unifer 61% held Absa subsidiary By December 2001, insolvent by R1,1bn Underprovisioning of R1,8bn Had run a decentralised credit scoring system Absa leaned on to step in and rescue it

8 Crisis continues Combined impact of small banks crisis and Unifer collapse focused attention on Saambou and African Bank In February 2002 rumours broke out about Saambou leading to a run on the bank Finance minister believed it was solvent, put into curatorship

9 Crisis continues Saambou collapse sparked upward contagion BoE (6 th largest bank) faced a run Unprecedented joint guarantee by Reserve Bank and Finance Ministry Left no choice but sale of BoE - Nedbank stepped in We stared into the abyss African Bank ok, Capitec born

10 Recovery Work began towards a new regulatory regime for unsecured lending Much work led by MFRC which drove a voluntary conduct regime 2007 saw the launch of NCA and NCR Growth of lending took off

11 NCA features Reintroduced an interest rate cap: repo x pc points = 31% NCR registration compulsory for books >R500m or 100 clients Silent on other charges Removed value limits Figure 5: Revenue from unsecured personal loans 9.7% 11.2% 11.2% 68.0% Interest rate Initiation fees Service fees Credit life source: National Credit Regulator

12 Impact 1 Rapid growth ensued Figure 2: Unsecured credit gross debtors book (Rbn) Grand Total 30+ days overdue source: National Credit Regulator

13 Impact 2 Loan size grew sharply Figure 3: Gross book per loan size category (Rbn) R0K-R3K R3.1K-R5K_U R5.1K-R8K R8.1K-R10K R10.1K-R15K > R15.1K source: National Credit Regulator

14 Impact 3 Loans accelerated in higher-income categories Figure 4: Gross book per income category (Rbn) Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q42011Q12011Q22011Q32011Q42012Q12012Q22012Q32012Q4 R0-R3500 R3501-R5500 R5501-R7500 R7501-R10K R10.1K-R15K >R15K source: National Credit Regulator

15 Why? Greater scope under NCR Higher affordability levels Increasing wage rates among low- and mid- income earners Growth of consolidation loans Capture of clients with large facilities to swamp affordibility

16 Entry of big 4 Large banks went into the market Higher margins, Basel 3 enhancement FirstRand Nedbank Standard Bank Absa Average margin (%) y-o-y book growth (%) Average margin (%) y-o-y book growth (%) Average margin (%) y-o-y book growth (%) Average margin (%) y-o-y book growth (%) Home loans 1.4 1, n/a Vehicle finance , n/a Credit cards 8.7 5, n/a ** Personal loans 15.5* 93, n/a *FNB Personal loans. WesBank loans have an average margin of 20,75% ** Includes acquisitions of Woolworths and Edcon books

17 Political backlash Systemic fears hark back to 2002 ( our own subprime crisis ) Threat of abolishing garnishee orders Claim of widespread abuse Caused Marikana Driving labour unrest Strangely no comment on the displacement of asset-backed lending

18 Differences to 2002 Almost no deposits are exposed to unsecured lending (Capitec 40% of funding, Abil 3%) Much more widely dispersed Small proportion of big bank assets total unsecured lending of R453bn is less than 13% of bank assets (includes credit cards, overdrafts)

19 But there is stress Figure 7: Accounts reported as "current" 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% % Number of accounts % Rand value source: National Credit Regulator

20 Regulations will change Garnishee orders, but no abolition Standardised affordability testing Regulation of debt collectors Regulation of insurance products Better rate disclosures Remodelling of consolidated loans register?

21 The end Questions? Financial and political risk analysts specialising in Africa