Rating agency Fitch on Tuesday issued a statement criticising the government's plan to introduce a new credit amnesty and to allow records of old debts to be removed from credit systems, saying it would affect non-bank lenders the most.
The agency said non-bank lenders are more active in unsecured lending to impaired borrowers and are therefore more reliant on credit bureau information. It did not foresee a major impact on Fitch-rated structured finance deals, however.
According to Fitch: "The proposal may introduce some moral hazard into borrower behaviour that could affect banks' loan portfolio performance, but we do not think this would be sufficient to fundamentally affect asset quality over our rating horizon. Still, it could raise bank origination costs, and restrict rather than boost credit extension.
"It would hamper banks' ability to assess new borrowers. But existing borrowers will account for a large proportion of new lending and banks will still have access to their own borrower credit history information, and will remain able to price loans accordingly [although risk-based credit scoring would take account of the overall information reduction]."
The agency said, however, that should banks be forced to make additional background checks, or take a more conservative assumption about a new borrower's credit worthiness, "origination costs – and therefore average interest rates for new borrowers – could rise, defeating one of the proposal's aims".
If it made banks more wary of lending to new borrowers, it may fail in its aim of bringing individuals from the cash economy into the consumer credit market, it also pointed out.
It said as the non-bank lending sector would be the greatest affected, it did not foresee on Fitch-rated structured finance deals because that was not a sector it monitored. "The impact on these existing securities would not necessarily be great as the underlying loans were granted when originators had access to fuller borrower credit histories.
"The impact on unsecured consumer loan securitisations might be bigger as borrowers are likely to have a negative credit record, and the nature of the product increases the likelihood of moral hazard."
It said a similar initiative in 2006 did not see borrowers changing their behaviour. "Credit Bureau Association's analysis indicates 64% of borrowers affected subsequently took on more debt. Of these, 48% defaulted or had a judgement made against them within five years," it said.
It did see the decision having an impact on retail borrowers.
"Publicly available data, for example from the National Credit Regulator, suggests that close to half of active borrowers registered with credit bureaus are impaired. But mortgage borrowers represent a very small portion of these records, and RMBS [residential mortgage-backed security] is the largest securitisation sector in South Africa," it said.
Government is pressing ahead with plans to grant credit amnesty to over a million indebted consumers despite opposition from banks and lending organisations. The Credit Amnesty Bill to remove adverse credit information from credit bureau listings was tabled in Parliament this month. And government says it hopes to have the process in place by the end of the year.
The department of trade and industry has stressed that the process does not relieve consumers, of which about 1.6-million will benefit, of their obligation to pay off their debts.