Local banks are concerned that some of their customers will get away with not having to repay their debt under the National Credit Amendment Act, signed into law by President Cyril Ramaphosa last week.

It sets the groundwork for over-indebted consumers to have payments suspended, in part or full, for as many as 24 months, or even scrapped if their financial situation has been found to have worsened.

A BusinessLIVE report notes the Bill was opposed by the banking industry, clothing retailers who provide credit and the opposition DA, as it would drive up the cost of loans for low-income earners, restrict lending and encourage bad behaviour by borrowers.

‘It’s disappointing that after our petition, the President made no attempt to interact with the industry and understand our concerns,’ Cas Coovadia, the MD of the Banking Association of SA, said on Friday.

‘This is an issue of serious concern.’

The association did an economic impact assessment and engaged the Department of Trade & Industry, which spearheaded the Bill, and found that banks will either have to price in higher risks or avoid lending to low-income customers altogether. ‘This could have serious economic implications,’ Coovadia said.

‘We will await the gazetting of the Act and details around its implementation. We will sit down and consider our other options.’

Full BusinessLIVE report

The Act will also send the wrong message to investors and ratings agencies, which will further weaken SA’s already ailing economy, according to Coovadia in a second BusinessLIVE report. He warned the new law is likely to have a devastating effect on the economy, at a time when SA should be pulling out all the stops to avoid a ratings downgrade and to attract investment.

‘This means the cost of credit will go up, meaning that there will be less money for productive use in the economy. This will negatively impact economic growth. There will more risk for banks, which are also being asked to lend to state-owned entities that are not good lending propositions,’ said Coovadia.

He also said the proposed law brings risk to the banking sector – a part of the economy that is working well.

‘While we recognise that over indebtedness needs to be dealt with, it should be addressed in a constructive way. Individual banks have their own schemes of restructuring debt, which are working well. These instruments can be brought up to scale. (This law) makes a significant intervention in the market, which will not send the right message to investors and ratings agencies. It will not inspire confidence,’ said Coovadia.

Full BusinessLIVE report