As part of its annual financial stability review, the South African Reserve Bank (SARB) has provided an update on the National Credit Amendment Bill (NCAAB).
The SARB noted that the bill was adopted by National Assembly’s Portfolio Committee on Trade and Industry on 29 August 2018.
“The current draft of the NCAAB includes some new provisions prescribing over-indebtedness as a requirement to qualify for debt intervention,” it said.
“The National Credit Regulator (NCR), through an amendment to section 15A of the National Credit Act, is envisioned to act as a facilitator of the debt intervention process by assisting affected consumers through the process of being declared over-indebted.”
“It is envisaged that the NCR will use the industry Task Team Agreement to renegotiate the repayments of the debt intervention applicant.”
According to the Reserve Bank, this debt may be suspended in part or in full for up to 24 months and may be extinguished altogether if the financial circumstances of the applicant do not improve.
While the Reserve Bank does not provide further detail on who will be able to have their debt written off, the ANC has previously indicated that this will likely only apply to consumers who do not have more than R50,000 in unsecured debt and earn no more than R7,500 a month.
According to the Reserve Bank, the potential unintended consequences due to the implementation of the new debt review proposals could include the following:
- The NCAAB could have varying effects on lenders, depending on their exposure to the low-income groups targeted by the intervention. Micro-lenders in particular, whose loan books are smaller than banks’ but more skewed towards low-income borrowers, are more likely to see write-downs affect their overall balance sheets than banks, it said.
- The NCAAB may adversely affect the supply of credit to the affected borrowers. This may lead to the disruption of access to credit, not only for over-indebted households but for low-income consumers as well and this could have negative implications for financial inclusion.
- There may be an increase in moral hazard on the part of some borrowers who may enter into further credit arrangements in anticipation of debt being written off. However credit providers would still be required to apply strict affordability criteria on all credit applications.