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Credit environment risky for lenders

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A recent business breakfast hosted by SAS Institute highlighted the fact
that credit lenders and consumers alike are facing hard times.

"On average South Africans spend 80 percent of their disposable income on
servicing their debt.  Of the cases under debt counselling it is estimated
that around 67 percent of are non performing, with an average consumer owing
to eight credit providers at any one time," says Dr. Tjaart van der Walt,
CEO of the National Debt Mediation Association (NDMA).
Noting that South Africans' bad debt and defaults on payments spell bad news
for creditors and debtors across the board, van der Walt also emphasised
that the new National Credit Act  (NCA) protects consumers from being
targeted by credit providers, as long as consumers utilise the process as
envisaged under the NCA. Within the next few months, the NDMA will pilot  a
voluntary process of debt mediation.
"We see this programme as assisting with the management of
over-indebtedness, and complimentary to the current, formal debt counselling
process. Currently there are around 20 000 in-debt cases in the process with
debt counsellors with an estimated amount outstanding around R5-billion,"
adds van der Walt.
"Many debtors have not sought debt counselling, and when they do it's often
too late as the legal process has already begun."
The current situation has been highlighted in the media and calls for both
consumers and credit providers to take responsibility and return to the
basic rules of budgeting and lending. The NDMA – which has representatives
from several retail associations – is the first step in a voluntary credit
provider body committed to providing over-indebted consumers with alternate
assistance.
"Conventional risk models are often not forward looking enough and fall
short of risk expectations. With interest rate hikes, sub prime losses at an
all time high and recent market moves all contributing to the failure of
many credit risk models, now is the time to invest in your risk strategy,"
says André Zitzke, solutions specialist at SAS.
Along side van der Walt, the breakfast also hosted Bevan Smith senior
manager OpRisk at IQ Business Group, as well as Prof Machiel Kruger, head of
SASLab Centre for Business Mathematics and Informatics.