African Bank Loans were divided into Bad Loans and Good Loans, after the company went into curatorship in 2014, and had to be rescued by the South African Reserve Bank (Sarb). Sarb forked over R7 billion to bail out Bad Bank. Whereas, major private banks raised R10 billion in capital for Good Bank.
The downfall of African Bank can primarily be blamed on granting reckless credit to vulnerable consumers, such as the financially illiterate, desperate and poor.
According to the National Credit Regulator’s (NCR) latest statistics, South African consumers currently owe banks R1.63 trillion in credit debt!
Furthermore, there are now 10.5 million South African credit-active consumers who have fallen into arrears for 3 months or more.
Given the shocking nature of the status quo, you would expect South African consumers to slow down on credit applications. Instead, the number of applications for loans soared by 16.8% in the 2nd quarter of 2015.
R112 billion in new loans were granted in the 2nd quarter of 2015, up from R108 billion
The NCR said that the total value of new credit granted increased from R108bn in the first quarter to R112bn in the second quarter.
Conversely, the loans rejection rate rose to 56%, showing that South African banks are beginning to appreciate the gravity of the situation.
Credit providers, such as African Bank, are more hesitant to grant unsecured loans to consumers these days and have tightened up their lending criteria. Despite this, the number of consumers applying for bank loans rose by 1.1% to 23.37 million in the 2nd quarter of 2015.
Hopefully, African Bank has learnt its lesson about reckless lending, along with other credit providers who have observed their fall from grace.
However, it’s not only up to the banks to reduce South African debt levels. Consumers need to do the responsible thing by turning to debt review for cash flow relief, instead of taking out more loans when debt has clearly become a problem for them.