Tito Mboweni has come up against a new enemy in his battle to curb the credit-spending splurge. The banks.
Flying in the face of the Reserve Bank governor’s attempts to bring down consumer spending and debt, South Africa’s banks are going into overdrive by offering consumers new lines of credit in an attempt to grow their books.
Increased competition in the credit card market, created by new entrants such as Virgin, Edgars, Woolworths, Discovery, SAA and kulula.com, has caused a mad scramble among the big banks.
In the past year, call centres have become the most important arsenal in the armoury of South Africa’s banks as identified targets are hounded to accept new credit cards, mortgages and personal loans. Every tool is being used by the banks in their grab for market share; that SMS from your bank might be to offer you a R50Â 000 loan.
Speaking in early October, Mboweni, who has been urging consumers to lower their levels of debt, said that consumer spending through credit card lending has recorded year-on-year growth of 38,6% to a level of R36,9billion at the end of July 2006. The growth in instalment-sales debtors has also continued unÂabated, growing by 18,8%, to a level of R201,6billion over the same period, he said.
Just using the Mail & Guardian editorial department as a sample, 16 of 28 staff members were called within the past month and offered numerous new banking services.
Banking analysts described the current cold-calling by banks as a “free-for-all”, insisting there was no doubt that the massive increase in cold-calling was related to the new National Credit Act’s (NCA) last set of regulations, which will come into play in June 2007. These regulations will outlaw cold-calling by banks.
This massive increase in marketing activity has prompted the National Credit Regulator (NCR) to commission an economist to investigate whether the increase in marketing is a build-up to the NCA or as a result of increased competition. The brief includes an evaluation of how banks are identifying and selling to customers.
Errol Kruger, the registrar of banks for the Reserve Bank, says that although banks have state-of-the-art risk management processes and systems in place, excessive cold-calling raises the risk of lowering asset quality.
“Furthermore, and probably more importantly, consumers could find themselves exposed to more than one bank, causing unexpected losses for banks during times of change in the economic cycle,” says Kruger.
NCR CEO Gabriel Davel says part of the massive increase in credit card offers can be attributed to the NCA, describing it as banks “making hay while the sun shines”.
“The coming Credit Act may have something to do with it, but it is not the primary reason,” says Davel.
He says the promulgation of the NCA was an effort to increase competition in the sector. Aggressive marketing is a result of that increased competition.
Davel says statistics show that credit cards are replacing micro-loans and furniture debt for a lot of consumers, which is a good development because these are less costly forms of debt.
However, he does admit that there are problem areas. In a recent case a consumer was approved for a credit card with a R30Â 000 limit when he couldn’t get approval for a R6Â 000 micro-loan.
“There is quite a bit of this going on,” says Davel. “There is some credit going on that is beyond people’s affordability.”
Davel says the NCR has launched five investigations into major players in the sector regarding the dissemination of confidential information. These probes will try to establish whether confidential customer information has been illegally sold or distributed.
Virgin Money’s Gavin Muller says Virgin has taken a decision not to cold-call potential customers, as it can be extremely brand erosive.
“We are not going to phone Joe Soap at 6.30 in the evening when he has just gotten home from work, because we will just end up irritating him,” says Muller.
He says take ratios for cold-calling are low and average about 4% to 5%. “If they get a take-up ratio of 9%, the guys are doing flick-flaks across the room.”
Muller says the primary reason that all and sundry are being offered credit cards is because of the new NCA regulations.
Absa’s Errol Smith says the banks are doing nothing wrong, merely aggressively marketing their card division. The credit card market has become highly competitive and banks are merely protecting their turf.
Smith says that if customers are receiving multiple calls after they have declined a credit card, then it is a failing of the system, for which he apologises.
“I think people should feel good about the fact that a bank called them, because it means they have a positive credit record,” he says.
“I’m really not sure why they persist with people who say no,” says one analyst, who did not want to be named. “Perhaps they just really want to make sure that you don’t want that extra credit card.”
The Direct Marketing Association of South Africa says the past few months have seen unusually high telemarketing activity, which will probably continue until May next year. “Bad and inconsistent practices will inevitably generate bad press and consumer happiness,” says the association.
FNB’s Pat Muthui says there was a margin of error when conducting direct-marketing initiatives, which resulted in double or multiple communications. He said FNB were trying to address these errors by ensuring that anyone who requests that they not be contacted is added to an in-house register.
Standard Bank’s Ross Linstrom says any changes to strategy are the direct result of competition in the marketplace. “The implementation of the National Credit Act has not made Standard Bank more aggressive in its acquisition strategy.”
Nedbank says it is fully aware of its duty to lend responsibly and, despite the increase in marketing activity, lending criteria have not been relaxed.