Will Credit Granting Drop?
Unsecured Credit Rate Cut to Cut Lending Too?
Recently the DTI published proposed new maximum rates that creditors will be allowed to charge for the credit they grant. While many of the figures remained similar or crept up slightly the DTI are making big cuts to what creditors can charge for unsecured credit. This is being done in an effort to try make this type of credit granting less attractive to creditors and to help reduce the debt being racked up by South Africans in this sector. In the past few years this part of the market expanded exponentially and grew to unprecedented levels. This has made many people very nervous as they were concerned about a credit bubble. Though the bubble has not burst increasing pressures in regard to fuel and food prices has led more and more consumers into over extending themselves and eventually defaulting on tese loans. Companies like African Bank felt the pinch when consumers just did not pay and in African Bank’s case it was a huge factor in their crash.
Proposed Change
The DTI have proposed dropping the maximum rate which can be charged for unsecured credit down from the current 32.63% down to 24.78%. So basically from creditors charging you an extra an extra 1/3rd per year on what you borrow to only an extra 1/4 per year interest.
Now analysts working with Capitec are forecasting a drop in unsecured credit granting of 25%. This means that they think that creditors will be handing out less of this type of credit (for which they will be able to make less profit due to the proposed rate cuts). This is because these creditors will have to be more picky about who they give such credit too and that they will probably have to make sure they charge everyone a bit more (%) even if they are low risk clients to make up for lost profit on the other extreme of the lending market (the risky ones). With half of all credit active South Africans already missing payments for months and months it means that they will be handing out less credit to less people to avoid risk of non payment. The Company; Avior, say that should the proposed maximum interest rate cuts happen ( the banks are fighting it) then they expect the number of loans that Capitec give out to drop dramatically. It will also force Capitec to start looking at other products and ways to make up the reduced turnover in this arena. The NCR recently released a report which shows how credit granting is already slowing down at present.
When?
If the Maximum Permissible Rate cuts do get the thumbs up, it is then a case of waiting to see when that will come into effect. As with the amendments to the National Credit Act which Debt Counsellors were waiting for for months. The all important date is the effective (or starting) date not jsust the date it gets printed in the Government Gazette. Avior say they anticipate that only happening early next year (2016).
Read about all the Proposed Changes here:PROPOSED RATES