Heavily indebted citizens in South Africa have got a reprieve, when President Cyril Ramaphosa recently signed the National Credit Amendment Bill into law. The law allows the over-indebted consumers to have payments suspended, in part or full, for 24 months, or even scrapped if their financial situation becomes irreversible. However, this did not go well with the South African banks since it would add to their woes of mounting non-performing assets. They suspect that some of the customers, particularly the high ended oes, which have the repaying capacity intact, would take advantage of the extremely liberal policy.
The banking industry got support from the opposition Democratic Alliance in the protests. Their main grouse was that the President did not make any effort to consult the stakeholders including the bankers, while taking such a economically unsound policy, though it may help in playing to the gallery. The National Treasury estimates that the debt-relief proposals would result in the write-off of R13.2 billion to R20 billion (US$1.3 billion) of debt under various provisions of the bill.
The bill will help consumers who earn a gross monthly income less than R7,500, those who have unsecured debt amounting to R50,000, and who have been found to be critically indebted by the National Credit Regulator. The bill pulled down the six-member FTSE/JSE Africa Banks Index by 0.7%. It is expected that the decision may have serious economic consequences later.
In the meantime, IMF has found that South Africa’s public debt, which is approaching rating agencies’ red line of 60% of economic output, is reaching uncomfortable levels. The present decision of the loan deferring and write off coupled with the recent bailout plan extended to power utility Eskom of 59 billion rand (US$4.1 billion) of additional financial support over the next two years, on top of an already-promised bailout of 230 billion rand spread over the next decade, will have a significant impact on the fiscal and monetary aspect of the economy.
