Reserve Bank deputy governor Lesetja Kganyago on Tuesday warned that the government’s proposed "credit amnesty", which would result in the deletion of adverse credit information on consumers’ profiles, could "choke" the flow of credit in South Africa.
The Cabinet agreed to a limited amnesty last month, and MPs have backed the measure amid criticism that it was being pushed through as a populist measure to attract voters ahead of elections due next year.
The idea behind the credit amnesty, according to the Cabinet, is to open up access to credit to those who have been blacklisted even though their debts may be fully paid up. There are also concerns that some consumers have adverse listings not because of irresponsible behaviour, but as a result of having lost their jobs.
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There is a belief that a deletion of some of the adverse information could also open up job prospects for people who are denied jobs because of a negative credit listing.
The Bank said the banking sector’s total gross credit exposure grew 9.8 percent in the 12 months to June, while impaired advances, or bad debts, fell 2.3 percent, a smaller contraction compared with the 10.9 percent in the previous period. Total unsecured credit exposure expanded 6.3 percent to R468.7bn in July from R441bn in December last year, most of it in credit cards and overdraft facilities.
Mr Kganyago said if the records were wiped clean, lenders would not have a reference point to measure risk. This could cause lenders to be more conservative when granting credit, leading to a slowdown in its flow.
"We might just undermine the flow of credit," Mr Kganyago said. "Amnesties lead to other amnesties.
"You have an amnesty now and a few years down the line people will ask, 'Give me some more.'"
The risk with amnesties was that the borrower might care less about maintaining a solid credit status in the hope that there would be an amnesty in the future to remove adverse credit listings.
South Africa’s banks and rating agency Moody’s have also previously warned that lenders could tighten their lending criteria if adverse credit information is deleted. Moody’s warned last month that amnesties could lead to a situation where borrowers would not bother to be responsible because of a chance that their bad debt credit information would be deleted.
Lesiba Mashapa, the company secretary at the National Credit Regulator, said the payment profile information, which reflects how an account is paid on a monthly basis, would not be removed from credit records.