Africa Unsecured Lending Summit
The Africa Unsecured Credit Summit began on Thursday this week in Gauteng.
After a light snack and cup of coffee the Summit opened with a welcome from the hosts.
Zak King of Debtfree magazine ( the Debt Counselling & debt review magazine) was chairman for the day. He had the privilege of introducing the various speakers throughout the day.
Stuart Theobald MD of Leriba consulting firm – specialising in financial and political analysis of markets in Africa – was the first speaker for the day.
Stuart discussed the recent history of unsecured lending including the 2002 micro loan crisis. He considered the collapse of Saambou and how it cost the public 7 billion Rand. The crisis had originated with the decission of government to stop payroll deductions that were being made to pay for defaults on micro loans. He looked at what the industry learned from these events. At present the book value of unsecured lending is now 10 times as large as where it was during the 2002 crisis. He then looked ahead to possible future developments of the industry.
One interesting fact which was raised is that profit margins in home loans are between 1.4 -1.7% as opposed to 15- 29% for unsecured lending. This clearly shows the motivation behind such lending.
David Coleman head of analytics for Experian presented a credit bureau perspective on unsecured lending. He showed how micro loans (very short term loans) have not really increased all that much as opposed to larger unsecured loans. He showed how there has been a shift from people using credit for wants to using credit facilities to pay for needs. They expect to now see less growth or even a drop in unsecured lending.
Some interesting points were:
Most of the unsecured lending that is currently going on is now in the region of R10000 loans over 12 months.
More and more younger people are taking on debt. They normally start off with a store card and then move on to a loan. They are also the most risky or unlikely to repay their debts.
Tami Sokutu of African Bank delivered an emotive justification of African Banks policies. He stated that unsecured lending has become something of a swearword in certain areas. African Bank are proud of the role they have played in opening access to credit to the larger population base. He discussed his personal past experience of being turned down for a loan and what he learned from that discrimination. He pointed to the simple fact that since African Bank don’t offer deposit accounts that all their clients actually already bank with another bank.
He then discussed the figure of their 20% default and how it is divided between “bad faith lenders” and “bad luck lenders”.
His presentation included videos of African Bank clients and how they had received loans which had assisted them.
Tami said that African Bank are confident that (in regard to their recent drop in share prices) “this to shall pass”.
The growth in unsecured lending at African Bank is not among low income earners but rather new consumers who earn around R15000 a month. They say their consulting research company report that a very high percentage of lenders are using loans for home renovations or servicing other debt and not consumption as some are saying.
Simon Trupp of consultancy Principa discussed how SA is world leading in many respects including use of lending analytics and even legislation (like the NCA).
He pointed to the simple fact that there is no organisation that lends without bad debt. Fancy analytical computer programmes work out how likely it consumers will default. It helps organisations decide how much risk they can handle.
Economist Sanisha Packirisamy of Momentum Asset Management, discussed recent trends in unsecured credit. She showed how – ignoring overdrafts and credit cards – 40% of loans currently in existence are for large amounts (80% of the current total amount of unsecured lending). Less and less smaller loans are being granted. Banks are rather making larger amounts (eg.R10000+) available.
Also less and less overdraft facilities are being offered. Consumers are now rather having to access unsecured loans.
Recently there has been a shift, at the large banks, to curb unsecured lending due to increased defaults.
As per data from the NCR 1 in 4 unsecured accounts are 4 months behind on payments.
Economic slowdown and reduced increases etc. will further impact on consumers in the next few months. This will see consumers become further vulnerable and increase debt stress. 2014 could be a very tough year indeed.
American speaker Matthew Warren of First Avenue Investment Management looked at recent stats of growth in unsecured lending at various banks particularly the 6 big players in the industry.
He pointed to how increased lending has been linked to increased retail sales. Basically consumers have been spending more and buying more as they at the same time have been getting more funds from loans. Now sales are dropping which could have a big effect on the SA economy which is very much driven by consumer spending.
He showed how there is currently a serious degradation in performance on all forms of unsecured lending and how numbers are now dropping.
Matthew expressed respect for African Bank’s transparency and information sharing. African bank have tightened up their lending criteria and interestingly also reported slightly less people asking for loans recently.
He showed how the “peak” in the unsecured lending cycle has probably now come and gone.
The discussion then turned to stats from Debt Counselling firm Debtbusters. Consumers have on average 13 credit accounts when they apply for debt review.
The day ended with a few additional questions to the speakers.
The summit continues on Friday.