The new debt relief laws could potentially harm South Africa’s international standing and could even result in a further credit downgrade according to Dawie Roodt, chief economist at Efficient Group. He also said that the new legislation will add to the ever growing national debt.
He went on to say that South Africa is already on the verge of seeing expropriation of land without compensation and now the ANC is tinkering with the financial system. It could mean that debt to the tune of between R13 and R20 billion could be written off, which belongs to banks and other financial institutions. These loans are in effect property and therefore should be protected by article 25 of the constitution. The question is then what message is being sent to the rating agencies.
Last week saw president Cyril Ramaphosa officially approving the National Credit Amendment Bill. The aim of such is to provide breathing room for some of the country’s hard pressed consumers, where applicants who meet the criteria can have their debt deferred in part or in full for up to 24 months. Not only this, the debt can even be expunged completely if the applicant’s financial circumstances do not improve.
So, what happens to loans and credit given the debt relief bill? Well, it could become a lot harder for people to get the loan they need.
Banks will Tighten Up
Financial institutions that could lose billions if loans are written off will look at tightening their lending criteria to the point where the majority of these individuals will not be able to get a loan in the future, according to the CEO of Debt Rescue, Neil Roets.
The debt forgiveness programme is aimed at low wage earners and retrenched workers according to the Department of Trade and Industry and they are the very ones that potentially may not be able to secure credit when the policy is implemented.
Director of the Banking Association of South Africa, Cas Coovadia agrees with this sentiment saying that the lending criteria of banks will be tightened as a response to the new act. The association has conducted an economic impact assessment, which engaged the Department of Trade and Industry and found that banks will have to price higher to cover risks or will avoid lending to low income customers altogether.
He said that this could then lead to serious economic implications, but other options can only be considered once more details and implementation details are released.
Article Source: https://businesstech.co.za/news/finance/335393/south-africas-new-debt-relief-laws-will-make-it-tougher-to-get-a-loan/