SACP: SA banks headed for crisis

2012-04-16 16:54

Johannesburg - South African banks are headed for a crisis if they do not deal with the increase in unsecured lending, the SA Communist Party said on Monday.

"Unless this trend is halted, the banks are headed for a crisis," SACP spokesperson Malesela Maleka said in a statement.

Maleka was backing comments made on Friday by SACP general secretary and Higher Education Minister Blade Nzimande.

"The South African banking industry is developing towards a huge crisis, likely to lead to a serious bubble, not dissimilar to that of the rest of the global banking and financial sector, unless drastic action is taken to prevent this," Nzimande wrote in the SACP newsletter Umsebenzi Online.

He attributed this to South African banks changing their lending patterns from 2008 onwards.

"During this period, there has been a huge increase in the number of unsecured credit transactions, a phenomenon exactly similar to that which led to the bursting of the housing bubble in the United States, triggering the current global capitalist crisis."

Unsecured lending refers to debt where the borrower does not have to provide any form of security, such as credit card debt.

Finance Minister Pravin Gordhan told the Foreign Correspondents' Association in Johannesburg on Monday that there was "no crisis in the banking system".

He said South Africa's banking sector was one of three which had withstood the financial crisis. The others were those of India and Australia.

Gordhan admitted that there had been a change in the lending patterns of financial institutions. He said it was not clear by how much unsecured lending had grown, as figures from various organisations differed widely, but it had significantly increased.

"If it feeds into consumption rather than investment, then that is a worrying sign."

Gordhan said according to some reports, higher income groups were taking chances with their levels of indebtedness. He said the government would look a lot more carefully at unregulated microlenders to see if they were overcharging on credit.

Banking Association SA managing director Cas Coovadia said on Monday that he was extremely concerned about Nzimande's statements.

"We must emphasise unambiguously that the South African banking sector is not in crisis and any allusion to a bubble is irresponsible," Coovadia wrote in The New Age.

He said the South African banking industry was rated second in the world for its stability.

However, the SACP said it would not be silenced by the "bullying tactics" of the Banking Association. Maleka said the National Credit Regulator's consumer credit market report for the third quarter of 2011 "paints a picture of how reckless lending, as manifested by amongst others, unsecured credit transactions, is on the rise in the country".

"These are the figures that the Banking Association pretends to be unaware of," he said.

Maleka said the financial and retail sectors worked together to promote reckless lending.

Nzimande's comments formed part of an attack on Nedbank chairperson Reuel Khoza who, in Nedbank's annual report last month, criticised South Africa's leadership.

  • Shaun - 2012-04-16 17:09

    Right, I am going to listen to 'Communists' explain the economy to me!

  • Greg - 2012-04-16 17:13

    Money is created out of Debt. The more the banks loan, the more money they can print out of nothing. Loan Loan Loan, get Richer and Richer and Richer. Banks are psychopaths.

      Freddie - 2012-04-16 18:48

      Banks are in the business of lending money. they take deposits from savers and on lend them to borrowers at a higher interest rate. The diff between the int they pay the saver and the what they charge the borrower is their profit. Banking 101 - How is that psychopathic? Have you heard of Basel 2 & 3? Banks can't lend money from nothing they need a proportion held in deposits. The reserve bank prints the money.

      Arthur - 2012-04-16 20:20

      I think both Freddie and Greg are correct, however don't forget that banks sell debt and also charge people for sneezing near their own money. Eventually there won't even be coins (the last "real" money - paper money is just a promissory note) and it's will all just be zero's and ones flying around cyberspace.

      Denny - 2012-04-17 13:15

      While the commercial banks obviously don't "print" the money they are fundamental in its creation. Fractional reserve banking and the role of reserve banks should be mandatory education at schools. (Hah right! That would make things way too uncomfortable for our leaders) Ah yes, inflation - the hidden tax.

      piet.strydom - 2012-04-17 17:29

      @Freddie - Commercial Banks actually also create "money", even if they don't print it. If you save R100 with them, they will lend that R100 multiple times.

  • Ben - 2012-04-16 17:14

    What Nzimande knows about the principles of Bank lending is dangerous. It is better to lend against repayment ability than security or rather to judge the customer on that basis.

      Ben - 2012-04-16 19:13

      As I said Mr. Nzimande the Minister of Finance just confirmed on the news that there is no crises in the S.A. Banking sector.

  • Luviwe - 2012-04-16 17:20

    These are loans that impoverish the low income earners. They are charged in excess of 80% to 100% in interests. These people are most vulnerable as they are told they do not qualify for credit card and overdraft debt.

      Luviwe - 2012-04-16 17:21

      Someone must stand up to these hyenas called banks.

      Ben - 2012-04-16 17:33

      Luviwe, although I share your sentiments about poor people, I have to point out that there is a maximum rate allowed by law. The rates you mention is charged by loan sharks but not the Banks. If they do, it should be reported.

      Luviwe - 2012-04-16 18:44

      Ben what is the legal maximum rate.

      Ben - 2012-04-16 19:09

      Calculated at Res. Bank's repo rate times 2.2 plus between 5% and 20% depending on the type of lending. The Banks should be willing to supply you with this information as this changes from time to time. One should look at this the same way you would look around for the best price if you make a purchase.

      Luviwe - 2012-04-16 20:15

      Ben the one they cannot go beyond come hell or high water if they are to give you a loan.

      Arthur - 2012-04-16 20:27

      Ben that percentage is on the loan, not their income - a wage earner who earns R1500 a week but took out a R10 000 loan (or loans) from one of those loan sharks... all they need is a court order, the guy to default or not respond (the sheriff doesn't care and nor do the courts) and the guy can have half his salary deducted by the accountant (they're forced to by the court) at the company where he works. I know this for a fact, a family member of mine is an accountant for a factory. You'd be shocked to hear what these loan sharks get up to.

      Luviwe - 2012-04-16 20:50

      Athur I want to know more about the banks and these isurance companies that have got into this market of credit lending. I have a story to tell.

      Ben - 2012-04-16 20:51

      That is so Arthur, but one should never borrow money from loan sharks. The Banks have strict laws in this respect and a Bank can lose it's licence if they are reported and found guilty. Luviwe, at the present rates I calculate it at between 17.1 and 32.1. This depends on the type of loan and the risk involved for the Bank. If the Bank takes full security for the advance, the rate will be less than for an unsecured facility as the risk to the Bank is lower.

      Arthur - 2012-04-16 21:18

      Please do share your story Luviwe, be honest and say what happened regardless of your pride - if others read it or hear about it they might not fall victim to debt too and you would be doing a lot of people good service. Ben - I agree, nobody should approach a loan shark - but in the wage earning circles it happens all too often with people who are poor, desperate and trying to live beyond their means. On the direct side it's not the banks to blame (it's the loan sharks) but police will say it's a "civil" matter and what poor guy can afford (or even understand) how to take it to court? The loan sharks credit record looks excellent to the bank, and that stands up in court - the poor guy lending the money looks like an uneducated criminal. In that sense the banks shirk responsibility and so the debt cycle continues.

      Arthur - 2012-04-16 21:20

      Apologies - "The poor guy 'lending' the money" I meant 'borrowing'.

      Deon - 2012-04-17 08:07

      The best way to prevent landing in debt and staying in debt is to only have debts for a house and or car. If you can not afford to pay cash for it, don't buy it.

      Kevin - 2012-04-17 08:55

      And some, you need to be financially literate and sharp not to get caught by one of the "banks" special offers.

      Kevin - 2012-04-17 08:58

      They gear up the "interest rate" by charging fees, also by charging the interest upfront and not crediting the client for early settlement. Recently I checked an instant loan agreement and the effective interest rate was 168%. When this was questioned the bank refunded the full amount of the charges.

      Denny - 2012-04-18 10:25

      Government can pass all the laws and regulations it likes but less face it: you cannot legislate a dishonest person into honesty. All you can do is make things a bit more difficult but people will still prey on one another. The best defence is knowledge. Ignorant people being scammed out of their hard earned money makes my blood boil. It is a bit pathetic that my generation went through schools which taught trigonometry and not the impact of interest / taxes and personal finance.

  • thepatrickwinter - 2012-04-16 17:27

    It appears Nzimande is having a go at the banks as a resulkt of Khoza's remarks on government. My opinion is that they will both fall if the country's tax revenue starts to wane. Unsecured loans is dangerous territory. A high price to pay for trying to provide investor growth.....

  • Klaus - 2012-04-16 17:41

    Did cANCer & Communist Party not force, or try to force Banks to give loans to a portion of the populace, now they have a problem in pay-back ? Just asking :-)

  • david.lebethe - 2012-04-16 17:42

    Khoza might be riding a tiger. But it is stupid to try to skid the carpet from under his feet when his critics are themselves corrupt. Otherwise, it is a question of a kettle calling another black.

  • Ali - 2012-04-16 17:47

    What a load of drivel. What bubble. The so called unsecured lending amounts to a minor portion of the total lending book of all the banks in South Africa. If he bothered to look at the numbers instead of the rubbish percentage growth he would understand that. Perhaps of course that is too much to expect.

      Arthur - 2012-04-16 21:28

      You give the man too much credit - "idiot" would suffice ;-) When there's nobody left on the planet the only thing left standing will be the banks - and maybe SARS - and the rest of the 'roaches.

  • braamc - 2012-04-16 18:29

    Focus on your job Blade, rather look at the state of your portfolio of Higher education

  • Kingpin - 2012-04-16 18:44

    Mr know it all. You are so drunked by ideology of always defending anything agaist ANC or Zuma. U are a doctor but this days you no longer think or apply your mind. You make me sick!!!

  • Arthur - 2012-04-16 20:14

    If everyone got out of DEBT the banks would collapse - they thrive on debt and especially on bad payers. Bring back the gold standard and nationalise the banks. Iceland is a prime example of how a country can take back it's power from the banks. In fact, I wonder how many people know that most banks illegally sell your home loan debt without informing you, so a repossession is actually illegal - especially since they got their money back and made a profit the second you signed.

      Luviwe - 2012-04-16 20:53

      Athur can you elaborate on this, these banks takes the poor for a ride. I think people don't understand these things. What might be a recourse if any?

      Robert - 2012-04-16 22:03

      Luviwe it's difficult to explain in the limits of these comment boxes. Basically the monetary system as it stands today is an illusion - the money we use is virtual not real, and those in control know the system is so complicated that most of the people (slaves) on the ground will never understand how it works. The "slaves" can be intelligent and middle class people who just concentrate on being a part of the system to survive (in fact the biggest contributors) not because they don't care about people but because they just want to live their lives as best they can. Then there is the real divide, the rich and the poor. Both have their merits and their downfalls, and both rely on the middle class.

      Kevin - 2012-04-17 09:14

      Arthur, the basic mistake we all make is thinking that money is real. It is a descriptor, it describes the rate at which I as an accountant can trade my services in return for goods from the grocery store or services from my GP. Money is the common denominator by which we place relative value on the goods and services in the economy. By manipulating the financial system the government via the reserve bank and banks can create money. If they do this faster than the economy grows this then translates back into price inflation. Basically banks screw the poor because they dont understand how the system works.

  • Mboneni - 2012-04-16 21:50


      Robert - 2012-04-16 22:10

      Don't get angry - get clever. Understand how politics works, how banks work, how money works and then you will realise how complicated the world is and how easy it is to be just another Zuma.

  • Andrew - 2012-04-17 07:18

    The man in charge of higher education which is in crisis telling the banks how to do business. Was this speech written on 1 April 2012.

  • Blixum - 2012-04-17 08:20

    Blade het sy mes in vir die banke.

  • Rob - 2012-04-17 08:30

    Increase the interest rate and forclose. In other words reward people/organisations that spend less than they earn....and send a clear message to those who habitually over-extend. Sure, this will be a short term pain for the economy and business, but it will improve future prospects.

  • Don - 2012-04-17 08:45

    Very interesting that on one hand "the people" demand access to credit and through government place pressure on banks to make access easier and then on the other hand, "the people" criticise the banks for the very same lending.........typical popularist politics

  • Kevin - 2012-04-17 08:52

    The SACP does not have a clue as to what they are pontificating on. Unsecured lending is not the problem. It is lending secured or otherwise that is done without knowing to who, for what, and why you are lending. The major problem that SA banking, has as with banking in the rest of the world, is the Derivatives Markets. It is where all the major scams and bank losses have occurred. If one considers the court case between ABSA and Nedbank over the single stock derivatives that caused a loss of almost R1bn, the problem is apparent.

  • Marc - 2012-04-17 09:50

    Hahahaha. Since when do commies know anything about banks, except when it comes to "nationalising" them! Good one Comrad Blade!

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