South Africa's lenders now had reduced firepower to address the deterioration in unsecured loan books, ratings agency Moody's warned on Monday.
The agency said lenders' moves to tighten affordability assessments would have a delayed effect in dealing with the challenges faced by the sector.
The warning raises the question of whether unsecured lenders will look to refinance and restructure some of their loans in order to deal with rising bad debts.
Moody's said that due to the longer periods borrowers were being given to repay their debt, it would take time for tightened affordability assessments to take effect. They had a quicker effect on shorter-term loans, it said.
The ratings agency said that about 62% of new unsecured loans extended in the first quarter matured in more than three years' time, compared to 29% in the fourth quarter of 2007.
Moody's also said that the average loan size granted had almost doubled, rising to R17 458 in the first quarter of the year compared to an average of R9 018 in the fourth quarter of 2007.
The ratings agency said typical loans in the market matured at between three and five years.
Moody's said low-value and short-term loans with repayment periods of a month to a year allowed lenders to address bad debts concerns quickly. "What we are saying is whatever remedial measure is taken today by lenders will take about 12-18 months to improve asset quality.… One of the reasons we expect further asset quality pressures is reduced flexibility by lenders to take remedial measures (to fight rising bad debts)," assistant vice-president Christos Theofilou said.
In a research note published on Monday, Mr Theofilou pointed out that the pressure to deal with rising bad debts would be much more severe with the unsecured lenders than with the larger, major banks in South Africa. This was because major banks held only a smaller portion of unsecured loans compared to their total loan books.
Article continues on page two...
