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No unsecured lending bubble

However, spiraling lending to ordinary South Africans is a concern.

Finance Minister, PravinGordhan says the surge in unsecured lending in credit cards and personal loans poses a very low risk to the banking sector, as it has been off “a very low base” and makes up a small share of the overall credit book of the banks. However, he's worried about spiraling lending to ordinary South Africans.

Gordhan was responding in writing to a parliamentary question from the Congress of the People (COPE) on whether this sharp growth was a risk to South Africa’s banking system.

The annual report of the Reserve Bank’s Banking Supervision Department, released last month, showed that the demand for unsecured credit card lending had increased by 8.3% year-on-year to January 2012, and by 33.6% for personal loans.

Gordhan said while this was a risk to ordinary South Africans, the amount constituted a small share of the banks’ overall credit book, at a combined 7.3%.

“Both the Reserve Bank Governor and I are satisfied with the assessment of the Banking Supervision Department that there is very low risk to the banking sector from recent growth in unsecured lending by banks.”

Gordhan said unsecured lending was discouraged by the Basel capital framework, as it required banks to hold additional capital.

“The South African banking sector currently exceeds the minimum capital adequacy ratios. They are sufficiently capitalised even taking into account the risk profile of their asset base,” the Finance Minister added.

He said the registrar of banks also had the authority to require banks with significant unsecured lending portfolios to adhere to higher minimum capital adequacy ratios (CARs).

The National Credit Regulator (NCR), reporting to the Minister of Trade and Industry, also monitors the market conduct practices of all credit providers. It’s currently conducting research into the rapid growth in the unsecured personal loans market.

Unsecured loans don’t require collateral and while riskier, are more lucrative for banks.

Gordhan said while the risks to the banking sector were small, he's concerned about the risks to ordinary South Africans.

“Predatory lending creates overly indebted consumers, threatens livelihoods and can trap people into a cycle of poverty.”

He said ‘excellent work’ was being done by the NCR through the National Credit Act to ensure responsible lending.

“We will continue to be vigilant to ensure that lending remains responsible and appropriate and does not harm the livelihood of ordinary South Africans,” the minister said in his parliamentary reply.

Deputy Reserve Bank Governor, LesetjaKyanyago, recently told the Nepad Business Foundation that he was concerned that unsecured lending had “doubled and is growing too fast”.

“The banking sector is a R3trn industry, and unsecured lending has grown from R23bn to some R50bn. The categories that have me worried are not the credit card lending or overdraft facilities, but more the personal loans and we would need to get to understand what is actually driving this. That said, even if this entire R50bn falls into default, it won’t make a dent on the banking sector.”

Moneyweb recently reported that Capitec had raised its credit offering to R230 000.

Capitec’s amount tops any of the offerings at South Africa’s four largest banks and is an increase of 53% from its January offering.

Absa offers personal loans between R3 000 and R150 000 over a term of 12 to 84 months, while at Standard Bank, you can qualify for a R120 000 loan if you earn R8 000 a month.