1. Presented by Cas Coovadia The Banking Association South Africa
The Credit Extended
– all about the R Values?
Presented by Cas Coovadia
The Banking Association South Africa
15 February 2017

2. Table of Contents Credit Extension Debt Relief
Debt Counselling Rules System (DCRS)
Cost of Credit
Legislation applicable to Banks
Twin Peaks
Factors impacting on credit environment
Questions

3. Credit Extension
Total credit granted and gross debtors book as at Sept 2016
The total value of credit granted increased by R9.19 billion (8.49%) from R billion to R billion for quarter ended Sept 2016.
The value of the outstanding gross debtors increased by R8.26 billion (0.50%) for the quarter ended September 2016.
Source – Consumer Credit Market report – Sept 2016
The Consumer Credit Market Report is issued by the National Credit Regulator.
It is based upon returns which credit providers are required to submit in terms of the National Credit Act (NCA).
The statistics used in this presentation reflect the statistics for the quarters up to 30 September 2016 (2016-Q3).

4. Credit Extension Total credit granted per industry as at Sept 2016
Agreements
2015-Q3 R000
2015-Q4 R000
2016-Q1 R000
2016-Q2 R000
2016-Q3 R000
2016-Q3 % Distribution
% Change (Q3/Q2)
% Change (Y/Y)
Banks
94,640,969
96,524,792
81,463,176
83,895,115
88,338,117
75.17%
5.30%
-6.66%
Non-bank vehicle financiers
10,293,565
11,089,597
8,924,954
10,115,317
10,586,568
9.01%
4.66%
2.85%
Retailers
4,539,449
3,687,792
2,938,713
2,972,729
4,255,821
3.62%
43.16%
-6.25%
Other credit providers
14,460,802
12,844,851
15,004,364
11,337,116
14,332,301
12.20%
26.42%
-0.89%
Total
123,934,786
124,147,032
108,331,207
108,320,278
117,512,808
100.00%
8.49%
-5.18%
Banks accounted for 75.17% of the total value of credit granted for the quarter ended September 2016.
The balance was shared by non-bank vehicle financiers (9.01%), retailers (3.62%) and other credit providers (12.20%).
Source – Consumer Credit Market report – Sept 2016
The Consumer Credit Market Report is issued by the National Credit Regulator.
It is based upon returns which credit providers are required to submit in terms of the National Credit Act (NCA).
The statistics used in this presentation reflect the statistics for the quarters up to 30 September 2016 (2016-Q3).

5. Credit granted – percentage distribution
Unsecured credit share of total credit granted increased from R20.60 bn for quarter ended June 2016 to R22.65 billion for quarter ended September 2016.
Mortgages’ share of total credit granted increased from R35.87 billion for quarter ended June 2016 to R36.58 bn for quarter ended September 2016
Source – Consumer Credit Market report – Sept 2016

6. Debt Relief Measures Debt Relief Measures (provided for in the NCA)
Debt Review Process (Debt Counsellors, Payment Distribution Agents)
Prescription of Debt (Stricter application given the NCAA)
Draft Credit Life Insurance Regulations (Introducing caps and minimum benefits)
Limitation of Fees and Interest Rates (Reduction in the Cost of Credit).
Affordability Assessment Regulations (Stricter lending criteria)
Debt Relief Measures
(not provided for in the NCA)
Debt Counselling Rules System (DCRS) which incorporates concession rules (above & beyond the NCA) for debt restructuring
Payment Holidays/Moratoriums
Restructuring/Rescheduling
Debt Consolidation
Bank Assisted Sales
Bespoke Arrangements
Settlement Campaigns
Allow for embedment, stabilisation, and supervision to establish the effect of the amendments prior to implementing further measures.
Types of voluntary debt relief measures offered by the banks, not provided for in the NCA

7. Debt Relief Measures (not provided for in NCA)
Description
Debt Counselling Rules System (DCRS)
When a Debt Counsellor uses DCRS, the system applies material concessions, that were agreed to by the Credit Industry, to assist over-indebted consumers in repaying their debt. The concessions go well above and beyond what is required in the NCA and consist of:
decreased interest rates (as far as zero);
the waiving of fees; and
the extension of the term of the credit agreement.
Payment Holidays/
Moratoriums
Providing the consumer with an opportunity to temporarily suspend payments due on an account in the event the consumer has been retrenched, is going on maternity leave, etc.
Restructuring/
Rescheduling
Providing the consumer with an opportunity to:
restructure (e.g. extension of payment term); or
reschedule (e.g. payment of arrears in instalments)
an account if the consumer missed one or more payments.
Debt Consolidation
Providing the consumer with an opportunity to consolidate his/her credit products that are in arrears into a new consolidated credit product such as a loan. The consolidation is at a lower interest cost to the consumer, thereby reducing the net monthly debt servicing instalment.

8. Debt Relief Measures (not provided for in NCA)
Description
Bank Assisted Sales.
Providing the consumer with an opportunity to sell his/her assets (movable and immovable property) privately, prior to the execution of the asset. The sale is based on a willing buyer - willing seller model, thereby maximising returns and minimising losses.
Bespoke Arrangements.
Providing the consumer with an opportunity to enter into a voluntary payment arrangement (as negotiated between the bank and the consumer), based on the consumer’s individual circumstances.
Settlement Campaigns.
Providing the consumer with an opportunity to settle his/her account/s at a discount (as offered by the bank), based on the consumer’s individual circumstances.
The underlying principle of the voluntary debt relief measures offered by the banks is that the consumer is able to repay the debt or will be able to repay the debt in the near future, when his/her circumstances change
The debt relief measures enable consumers to be fully rehabilitated without incurring expensive legal costs, ultimately allowing them to re-enter the credit market.

9. What is the DCRS ? DCRS Rules Rule 1
Concession rules for debt restructuring agreed by the credit industry in August 2010, that go beyond the statutory process under NCA
Rules incorporated into a software system known as Debt Counselling Rules System (DCRS)
DCRS launched in Feb 2011
All Credit Providers are treated equally in terms of concession rules
End goal being that only accredited rules deployed on the DCRS to be used by Debt Counsellors
Credit Providers guarantee acceptance of the DCRS applications which must meet all the criteria including eligibility and affordability guidelines
DCRS Rules
Rule 1
Ignore all Non Finance Charges and Convert Facility and Incidental Debt to Term Debt
Rule 2
Reduce Finance Charges and Extend Term
Rule 3
Reduce Interest Charges and Extend Term

10. Debt Relief Measures …….continued
The effectiveness of the debt relief provided by debt review, as it relates to the number of accounts in default, is best illustrated as follows:
Total banking Debt Review portfolio is R46bn as at Sep’16, reflecting consumers already benefitting from Debt Relief via Debt Review.

11. Debt Relief Measures … continued
The effectiveness of the debt relief provided by debt review, as it relates to the number of clearance certificates accepted, is best illustrated as follows:

12. Cost of Credit / Access to Credit
Legislated debt relief measures and criteria will make it very difficult for credit providers to adequately price for the risk of consumers
A confluence of pricing, regardless of individual consumer risk will arise at a portfolio level in order to offset the inability to price for risk
Access to credit will decrease due to potential de-risking and the cost of credit will increase as a consequence of a culmination of factors brought about by the economy and the recent amendments to the NCA
Legislative reforms to introduce additional debt relief measures will have severe consequences for the industry, economy (job losses, etc.), will increase risk to depositors / savers, will impose a cost on society, and will limit credit providers’ ability to extend credit.
Legislated debt relief measures and criteria will make it very difficult for credit providers to adequately price for the risk of consumers
A confluence of pricing, regardless of individual consumer risk will arise at a portfolio level in order to offset the inability to price for the risk
Consumers who have a good repayment history will no longer be rewarded for such behaviour when they apply for further credit.
Access to credit will decrease due to potential de-risking and the cost of credit will increase as a consequence of a culmination of factors brought about by the economy and the recent amendments to the NCA
Legislative reforms to introduce additional debt relief measures will have severe consequences for the industry, economy (job losses, etc.), will increase risk to depositors / savers, will impose a cost on society, and will limit credit providers’ ability to extend credit.

13. Legislation Applicable to Banks
Following legislative amendments have recently been enacted or are in the pipeline to be enacted, and which support and/or enable debt relief, e.g.:
Courts of Law Amendment Bill (affordability of Emolument Attachment Orders).
Debt Collectors Amendment Bill (review of the collection costs charged by Debt Collectors and Attorneys).
Social Assistance Act Regulations (improving the protection afforded to social grant recipients in respect of social grant deductions).
National Credit Act, Limitations of Fees and Interest Rates Regulations (decreased the cost of credit).
High Court and Magistrates’ Court Rules in respect of Sales in Execution (setting of reserve price).
Portfolio Committee to review and enable engagements with other government departments in respect of legislative reforms which were suggested but stagnated, and which support and/or enable debt relief, to revive these initiatives, e.g.:
Insolvency Bill 2000 (various proposed amendments to the insolvency law landscape in South Africa, dealing with NINA [no income, no assets] and NINJA [no income, no job] debtors).
Magistrates’ Court Act (suggested changes to the administration order process).

14. Twin Peaks
Credit Agreements will in future be regulated by the NCR (for credit agreements under the threshold) and a new Financial Services Conduct Authority (for credit agreements over the threshold)
According to the FSRB an MOU has to be implemented between the different regulators
Also of importance is the regulators collaborating together to ensure that there are not 2 sets of regimes having a potentially negative impact on credit extension and debt relief.

15. Factors impacting on credit environment
Sovereign ratings
Legislation
Debt relief……
Stagnant economy
Policy uncertainty
Lack of coordination

16. Questions