Consumer loan fiesta fizzles as banks put a cork in it

The party for unsecured lenders has well and truly ended, if new figures from the Reserve Bank are any indication.

The bank's quarterly bulletin, published this week, shows that the overindulgence by consumers on loans not backed by assets has come down dramatically.

Previously, lenders had supplied such loans freely as they profited by charging exuberant interests rates.

Growth in unsecured loans plummeted since reaching 30.1% a year in January 2013. By July last year, a month before the failure of market leader African Bank, unsecured loans were growing only 0.2% a year - the "lowest rate of growth since July 2003", the central bank said.

These figures challenge the notion that unsecured lending will just continue to climb. Former Capitec Bank CEO Riaan Stassen is one who believes such loans are "here to stay".

While there was a slight recovery in unsecured lending to 4.1% growth in January, this was off a low base.

"Following African Bank's fall, [lenders] are scared," Wayne McCurrie, the head of portfolio management at Momentum, said.

Banks have been tightening their lending criteria due to their fear that African Bank's collapse may have burst the unsecured lending bubble.

Nedbank was one of the first banks to tighten its criteria on consumer loans. A few years back, Nedbank CEO Mike Brown said the oversupply of this type of credit was a sign of "froth" in the market.

Nedbank revealed in its recent annual results that it had slashed its "personal loans" to customers by 16.3% last year. Standard Bank's lower risk appetite in the low-income segment of the unsecured loan market helped reduce its credit impairments by 8%.

Only 2% of the loan book of Barclays Africa, which has been extremely cautious about this type of lending, falls into this category.

The Reserve Bank said the drop in unsecured loans might be due to the fact that customers were wary about the interest rates charged, as well as concerns about job security and weak income growth.

This is why McCurrie believes "the glory days are behind us" as consumers are "full up" with debt.

However, Capitec, which publishes results next week, seems to have thrived since African Bank was placed under curatorship in August last year. Capitec is gaining market share even as African Bank continues to lend.