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Presentation on Unsecured Personal Loan (UPL) Market

Presentation on Unsecured Personal Loan (UPL) Market. For presentation to the Trade and Industry Portfolio Committee 27 February 2013. Topics. UPL Project Safety and Soundness vs Consumers Overview Credit market Analysis Unsecured Personal Loans Consumer Credit Index

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Presentation on Unsecured Personal Loan (UPL) Market

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  1. Presentation on Unsecured Personal Loan (UPL) Market For presentation to the Trade and Industry Portfolio Committee 27 February 2013

  2. Topics • UPL Project • Safety and Soundness vs Consumers • Overview • Credit market Analysis • Unsecured Personal Loans • Consumer Credit Index • Consumer Credit Records • Debt Counselling Statistics • Level of Competition • Compliance • Conclusion • Recommendations

  3. UPL Project OBJECTIVE The objective of the research undertaken is to determine the factors that are causing the increase in unsecured personal loans (from both the supply and demand side perspectives) and the implications thereof for consumers, credit providers and the credit industry. This was designed to assist the NCR to gain an in-depth understanding of the growth in unsecured personal loans and inform policy on consumer credit competency, market stability and lending practices. 1

  4. Safety and Soundness vs Consumers Financial System Prudential regulation Primary measure: Banks Safety and soundness Consumer Credit Consumer protection regulation Primary measure: Level of indebtedness; Reckless lending • Representations made • Banks • BASA • Banking regulator NB: Outside of project scope 2

  5. Overview Credit Supply Credit Demand • Affordability assessment guidelines • Disclosure of total cost of credit • Monitor and enforce compliance • Market practices review • Credit provider internal controls • Demand for UPL • Monitor level of “overdues” • Consumer education initiatives • Protection from undesirable practices • Access to credit • Credit usage 3

  6. Credit Market Analysis • UPL book growth R43.3bn, 49.3% • Q2 2012 y-on-y • UPL book growth R38.9bn, 38.5% • Q3 2012 y-on-y • Mortgages book R41.3bn, 5.3% Q2 2012 y-on-y • Mortgages book R33.7bn, 4.3% Q3 2012 y-on-y 4

  7. Unsecured Personal Loans UPL Granted According to Income Level of Consumers • The majority of UPL granted to middle income - >R3.5-R30k • Most significant category being >R7k-R15k segment - 37.0% 5

  8. Consumer Credit Index Source: TransUnion Consumer Credit Index, Q4, 2012 Improving Credit health until quarter 2 Deteriorating credit health in quarter 3 and 4 with some improvement in quarter 4 6

  9. Consumer Credit Records • Source: NCR statistics • Increasing impaired records over the period to Q1 2010 • Consistent sideways movement at this level thereafter with uptick in Q3 2012 9.2 million consumers with impaired records out of a total credit active population of 19.7 million 7

  10. Debt Counselling Statistics • The overall amount distributed to date since inception is over • R9 billion; • The number of applications to date(end of Jan 2013) is 374 379; • As at Dec 2012, the number of consumers loaded on the PDAs was 103 720 and of this number 80 801 made payments which represents 77% of consumers loaded. 8

  11. Level of Competition • Comparative quotes • Some consumers do not generally “shop around” • Quotes and pre-agreement statement from different providers • Installment focus of consumers. • Pricing • Average interest rate 23.5% • Differentiated pricing across loan size categories • Some pricing at the margin. • Credit life • Cost not disclosed as part of cost of credit in an integrated manner. 9

  12. Compliance • Policies and procedures • Confirmation from 10 largest providers • Credit agreements • Some disclosure recommendations for development • Affordability assessments vary significantly across credit providers • Affordability guidelines • Principle based guidelines recommended 10

  13. Conclusion • Differentiate between financial system and consumer protection • Consumers remain vulnerable to economic conditions • Level of consumers with impaired credit records • UPL current growth level sustainability • Credit life disclosure • Further consumer research needed 11

  14. Recommendations Credit Demand Credit Supply Consumer study • Consumer behaviour • Credit demand analysis • Credit usage • Monitor level of unsecured lending against consumer indebtedness Consumer education • Encourage healthy consumer credit behaviour • Implications of credit Supervisory investigation • Governance focus • On-site review • Compliance review • Principle based affordability guidelines 12

  15. Thank You

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