“The banking landscape has changed dramatically over the last five years pre-2008 and 2008. The banks had a huge appetite to lend and then you saw a bit of a meltdown in 2009 and we saw bad debts increasing at the banks, increase of regulations,” Paragon Lending Solutions CEO Gary Palmer told CNBC Africa on Friday.
“For the last few years they have seen greater returns in that space but then the last six months, especially in 2013, you’ve seen cracks developing in that space as well with bad debts also increasing. It’s going to be a very interesting time, the next 12 months to see where the banks are going to focus their energies.”
South Africa’s banks have had periods of strong growth but a sudden drop in growth tended to spark fears of a bank on the brink of failure, which, according to Palmer, is not always the case.
There has been significant concern over unsecured lender African Bank’s number of credit impairments and bad loans, which resulted in a hit in their share price, but the company remains successful and in business.
South Africa’s unsecured lending market has been under scrutiny for a number of years. The National Credit Regulator’s (NCR) recent call to fine African Bank R300 million for reckless lending earlier this year heightens the concerns.
African Bank and Capitec Bank had been the only players in the unsecured lending market for a number of years before the country’s commercial banks started entered the same market. Competition then increased as lending criteria started being changed.
African Bank then extending their loan period to five years with higher interest rates as a means of riding the competition wave, which Palmer believes is not sustainable.
“A lot of these banks and other non-bank lenders are taking their model and going into Africa. My view is that’s the real growth,” Palmer said.