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National Credit Amendment Bill – Why the banks are concerned

Last week, President Cyril Ramaphosa signed the controversial National Credit Amendment Bill into law. In short, the legislation will provide debt relief for consumers who earn R7 500 per month or less and have unsecured debt amounting to R50 000 by suspending the debt in part or in full.

The Bill has specifically been criticised by the banking industry, which says it will have a detrimental impact on the ability of banks to be able to lend to low-income customers.

According to a statement by the Banking Association South Africa (Basa), the act, in its current form, will restrict the ability of banks to lend to this vulnerable market and increase the cost of credit. “Basa petitioned the president not to sign the act in its current form and offered to meet with the presidency to further detail our reasons,” said Cas Coovadia, managing director of Basa. “We did not receive a response to the petition”. Furthermore, Basa is concerned that certain sections of the proposed new legislation concerning lending and borrowing are poorly considered and badly crafted.

The association did an economic impact assessment and engaged the Department of Trade and Industry, which is spearheading the bill, and found that banks will either have to price in higher risks or avoid lending to low-income customers altogether.

Basa has in good faith repeatedly pointed out to the government and the president that the National Credit Amendment Act is not a sustainable debt intervention measure as it fails to balance the rights of consumers and credit providers.

The Basa statement mentions that banks cannot extend other people’s money as loans — for education and entrepreneurship — if they cannot be sure these loans can be repaid. By making provision for the arbitrary expunging of debt, the act in effect prevents banks from extending responsible credit, particularly to those in low-income households who often need it most.

“Basa will continue to advocate for the strengthening and extension of existing debt relief measures, which have been proven to educate and rehabilitate debtors and return them to the credit market”, Coovadia concludes.

Click here to read Basa’s latest statements on the Bill.

In another article Khulekani Magubane of Fin24 unpacks the Bill by answering five questions:

  • How did we get here?
  • What is South Africa’s big debt picture?
  • What are the details?
  • What do parties think?
  • Any other considerations we should know about?

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