In a sign of the country’s increasingly
healthy economic outlook, South Africa’s national credit regulator
has reported that the country’s consumer credit market has more
than doubled in the space of five years to be worth over ZAR800
billion ($110 billion), helped by increases in secured and
unsecured lending, particularly a new wave of competition between
credit card issuers.

Gabriel Davel, the new national credit regulator, is optimistic
that the credit boom is set to grow even stronger. He says he is
confident that lenders are more responsible than they used to be,
and that the economy and structural changes in the market are
supporting the country’s consumer credit rise.

However, in line with the rising levels of consumer credit uptake,
arrears have also started to creep up, but Davel insists that
“there is nothing that indicates a crisis”. A new study released by
the regulator looked at the growth and composition of credit
extended to households in South Africa, and the indications are
that there are strong fundamentals underpinning the market.

Cards outstrip other lending

Bank credit extended to households (which accounts for 80 percent
to 85 percent of total consumer credit) increased by 135 percent
between January 2002 and September 2006, the study found.

Home loans and other asset-backed loans, such as auto finance,
comprise 75 percent of the banks’ total ZAR680 billion of lending
to households. Much of this is secured lending, driven by rising
house prices and disposable incomes, and lower interest

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Credit card debt comprises only 5.5 percent of total bank credit to
households, but cards have grown at a much faster rate than other
consumer credit products such as mortgage lending. By September
2006, South Africa’s banks’ credit card lending almost tripled from
ZAR13 billion in January 2002 to ZAR37 billion. Latest figures from
the Reserve Bank show credit card debt still growing at over 40
percent a year.

Recent regulatory initiatives, such as the new National Credit Act,
due to be implemented in June 2007, has been a factor in rapid
credit growth, with lenders trying to get in ahead of the act’s
deadline when provisions against reckless lending come into

Regulation and responsibility

The new rules will force credit providers to check how indebted
potential borrowers are before offering them new debt. The credit
regulator has also promised to do regular research on debt and

However, some in the industry are concerned that low-income earners
may be the first to hit repayment troubles if interest rates rise,
leading to greater levels of arrears. South Africa’s Reserve Bank
governor, Tito Mboweni, recently drew attention to the dangers of
high household debt on World Consumer Rights Day, saying: “In the
past three years, we have seen household consumption expenditure
increasing to extremely high levels. Credit extension by banks has
been rising at very high rates, and household indebtedness has also
increased to record highs. Some of this can be explained by a
number of positive developments in the economy apart from lower
interest rates.

“In accepting credit, consumers should understand their rights and
not fall prey to aggressive marketing of credit. For this reason we
are gratified that the banks have adopted a code of good conduct in
the marketing of credit. The National Credit Act, to be implemented
in the middle of this year, will provide further protection to
consumers. There are, however, always two sides to every
transaction and consumers should also act responsibly when taking
on further debt.”

South Africa: Credit card lending