Amid criticism that regulators and mainly the National Credit Regulator (NCR) and South African Reserve Bank could have acted earlier to prevent to near collapse of the African Bank, the NCR spoke yesterday. This has not stopped the attacks with Peter Montalto from Nomura launching another stinging criticism.
Montalto latest note on the matter says “Regulators cannot remove all risk from the financial system and prevent with 100% certainty all bank failures. However, it seems more could have been done by South Africa’s regulators.”
“They did act on the loan book, and we now know after Sunday that there was continual and increasing levels of intervention by the SARB, which ended with it telling ABIL what to do, said Montalto. This shaped the trading update of last week and the mention of the good bank and bad book. However, the NCR should have acted much earlier while the “reckless” lending was building up in 2011 and 2012.”
The NCR CEO, Nomsa Motshegare, issued a somewhat defensive statement yesterday saying it welcomes the measures announced by the Reserve Bank which “bring added stability to the South African credit market.”
The statement added that it has for some time engaged African Bank due to concerns about their lending practices and their impact on consumers.
“We investigated the bank last year for reckless lending and entered into a settlement agreement in terms of which the bank paid R20-million,” said Motshegare.
She added that the NCR has in 2011 expressed concern about the sustained growth in unsecured lending in an environment where many consumers had impaired credit records. “Unsecured lending has been declining since the latter part of 2012.”
She added that “African Bank’s recent growth in impairments and bad debts went a lot further than expected. Consumer over-indebtedness is not only caused by reckless lending and borrowing, but also micro and macro economic factors that have a direct impact on the debt repayment capacity of consumers, some of which occur after the granting of credit.”
Motshegare also said the NCR continues to work closely with the Reserve Bank to ensure “sound and fair lending practices across the full spectrum of banks providing credit.”
The NCR will engage the Curator of African Bank in an effort to ensure that the bank continues to serve its clients in a manner which is fair and equitable in terms of the National Credit Act.”Montalto notes that “the SARB arguably should have rejected the purchase of Ellerines, which was an acquisition solely to further cement ABIL’s undiversified business structure in providing more clients for unsecured credit.”
“More generally, however, there was a clear lack of willingness from all regulators to stand up to the leadership of ABIL with regard to its business models,” says Montalto. Just as the competition commission raises the red flag on monopolies, so undiversified financial businesses should be called out right from the start by the SARB and others, and given targets for diversification or else much increased capital requirements.”