FNB sees strong growth in unsecured loans

Johannesburg - First National Bank, the retail arm of South Africa's No 2 lender FirstRand [JSE:FSR], hopes to extend at least 20% more personal loans and to grow its unsecured loans market share by 4 percentage points this year, a top loan executive said.
 
Unsecured finance in South Africa grew 30% year-on-year in September to R113bn, down from expansion rates ranging from 35% to 40% from January to September, Reserve Bank statistics show.

"We feel about 15% (growth) is normal for the market and then the rest we want to take by taking market share away from other players," Pieter du Toit, chief executive at FNB Loans, told Reuters in Johannesburg on Tuesday.

FirstRand held 12.5% of unsecured loans in South Africa - which are issued based on a borrower's creditworthiness rather than on collateral - with R14.2bn lent in September, according to Reserve Bank figures.

Drawn by interest rates as high as 32%, South African banks have been pushing to increase their presence in unsecured lending.

The sharp growth in unsecured lending could also be worrisome for banks, because they may be lending to some clients who are less than creditworthy, Du Toit said.

"In anything else, if you sell more, you are typically very happy. With loans, if you sell too much, it means people are getting into trouble and can't handle the repayments," he said.

"We are worried that unsecured has grown a bit too much but it is because people are struggling to find other ways of financing."

The Reserve Bank has repeatedly warned that debt to income ratios are too high. Household debt currently stands at a staggering 75% of disposable income, the bank said in December.

A few years ago, borrowers were taking out loans against their mortgages to finance anything from holidays to home appliances. Lenders have since tightened their lending criteria after a 2009 recession sparked a surge in bad debts.

High-income earners did not typically use personal loans in the past and chose instead to tap their mortgages. They are now the newest entrants and the fastest growing segment in unsecured loans, Du Toit said.
 
FNB grew its market share by 4 percentage points last year by luring business away from big competitors Absa and Standard Bank, he said.

Smaller rival African Bank was market leader with over 30% of unsecured loans by September.

Although interest rates are not expected to rise, living expenses are seen going up sharply and squeezing the ability of many to repay existing facilities.

"People's ability to repay their debt may become strained so they will not qualify for a loan until they have repaid loans they already have," Du Toit said.