The introduction of South Africa’s National Credit Amendment (NCA) Act will provide much need relief to thousands of indebted South Africans – but it will come at a cost.
Known as the ‘debt relief bill’, the NCA will allow certain applicants to have their debt suspended in part or in full for up to 24 months.
This debt may then be extinguished altogether if the financial circumstances of the applicant do not improve.
The criteria for meeting this debt write-off include:
- Where the unsecured debt is not more than R50,000;
- Where the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only;
- Where the person earned no more than R7,500 a month over the last six months.
At a cost
Speaking to Reuters, a number of the country’s major banks said that the new rules, and the potential risks entailed for lenders, meant they had or would cut back on lending to those low-income customers who might qualify for relief in future.
- African Bank said it already had and would further reduce its lending to qualifying borrowers in response to the NCA;
- Absa said it would cut back on new lending to the riskiest borrowers among those who qualify for NCA relief;
- FirstRand said it had already gradually trimmed new lending to the group in anticipation of the law;
- Capitec said it would also reduce the proportion of borrowers who would qualify for NCA relief in its lending book to less than 5%.
In addition to a reduction in lending to this group, economists have also warned that there will be consequences when applying for debt relief.
“The problem is you are never going to get credit ever again in your life from the formal sector if you go this route,” said FNB Wealth’s Wayne McCurrie in August.
“This need for credit is not going to disappear which means that (these consumers) will go to the loan shark industry.”
Despite these concerns and any hits that South African banking stocks may take, McCurrie said that the actual impact of the bill will be relatively marginal.
“There is not that much physical money caught up in this, and you can’t just sign a form and get debt relief. It’s actually quite a long process you have to go through – it’s not an automatic thing.
“A few people will not bother to go through the whole process of getting relief because they understand that once they have done so they will no longer be able to access credit,” he said.