Banks Asset Recovery May be Delayed by Consumer Debt

Fitch Ratings says it expects that elevated levels of consumer debt may prolong the recovery of the asset quality of South Africa’s major banks.

Earlier the ratings agency had said the due to the high levels of consumer debt and a difficult operating environment there had been an increase in the amount of consumers who had been applying for a debt review as part of the National Credit Act’s debt review process.

It is estimated by Fitch Ratings that the value of the debt review exposures of the four major South African banks was 21 billion rand during 2010. It was also estimated that 200,000 debt review applications had been received by December 31st 2010 and that there was approximately 7000-8000 new applicants each month.

Due to unforeseen delays the banks have seen their attempts to begin debt recovery of the debt review exposures hampered.

Daniel De Bie, a director in irch’s financial institutions teams said “To minimise the impact of these delays certain banks have proactively used loan restructuring and in certain instances have sought to terminate the debt review process.”

“However, a recent high court ruling on credit providors’ right to terminate the debt review process and a moratorium until the end of June 2011 may further delay banks’ debt collection efforts and negatively effect collateral values.”

Fitch said it believed that the asset quality indicators of the four major South African banks would remain at elevated levels due to the delays.