Capitec Bank in Centurion Mall. CEO Riaan Stassen refuted claims that it only recently decided to grant large unsecured loans over longer periods. (Pic: Centurion Mall)
Cape Town - Capitec Bank Holdings [JSE:CPI]
believes it applies the most conservative credit criteria in the unsecured credit industry, said CEO Riaan Stassen
Stassen made the statement
in the wake of reports that the bank is pushing the lending bubble
dangerously close to bursting.
The bank refuted claims that it only recently decided to grant large unsecured loans over longer periods.
Stassen said the bank obtains information on the market on a continuous basis and as soon as it picks up trends, it amends credit criteria to coincide with the risk appetite and market conditions.
"We have been extending our term over the past 13 years as and when we felt comfortable with our credit model," Stassen said.
He outlined the launch dates of the loan products as follows:
April 2005 12 Month
March 2006 18 and 24 Month
October 2007 36 Month
September 2009 48 Month
December 2010 60 Month
May 2012 84 Month
"Bad debt ratios at the bank have been of the lowest in the industry for the past 8 years," said Stassen.
He said that it is illustrated in the low pricing of credit extended.
"The bank has always aimed at decreasing the cost of credit to the market and the only way to achieve this is to target the lower risk client segment in the market."
Unsecured loans are not backed by collateral and therefore riskier and more lucrative for banks.
However, Capitec, which makes high-interest loans to low-income consumers, said that it's not entirely dependent on credit.
It said that 26% of its net banking income is derived from transaction fee income (non-lending).
"The net transaction fee income covered the operating expenses by 45% in the 2013 financial year."
The deputy governor of the South African Reserve Bank on Monday moved to allay fears of a bubble
in the unsecured lending sector.
Unsecured loans totalled R453bn in March 2013, an increase of 24% from a year earlier, Lesetja Kganyago
Despite unsecured lending not posing a risk to banks, TransUnion on Tuesday released data reflecting a sustained deterioration in consumer credit health
, indicating that consumer credit has fallen sharply.
According to TransUnion, the fall in the CCI reflects escalating consumer loan impairments and sustained growth in distressed borrowing, both indicators of rising household financial stress.
In March, DebtBusters spokesperson Ian Wason said that in recent years, unsecured credit has been growing
at rates of up to 40%.
"Unfortunately we can see very little evidence of this money being used for anything other than consumption."
People are spending more than they earn, and this could only end in a debt spiral, with consumers taking out increasingly expensive loans to keep up with existing loan repayments.
"DebtBusters implore credit providers to perform more stringent checks on their clients before they lend, to implement some form of percentage cap on net income to debt repayments," Wason added.
The National Credit Regulator (NCR) has already taken action in response to claims of reckless lending.
In February, the NCR called for a fine of R300m
to be imposed on African Bank Investments [JSE:ABL]
over its lending policy but the bank is contesting the allegations.
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