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| Economic & credit evolution trends in South Africa | |||||
South African Economy The South African economy is enjoying its longest upswing in history, with GDP on the increase for 33 consecutive quarters since 1998. Figures released at the end of February 2007 showed that real GDP rose by an annualised 5.6% for Q4 2006. The main contributors to the increase in economic activity were manufacturing, finance, real estate and business services. Interest rates had remained relatively stable until June 2006, where upon the Central Bank moved rates up to curb consumer spending, with the latest increase occurring in December 2006. Consumer spending experienced frenzied growth over the past two years but is showing signs of slowing down, based on high house prices, rising interest rates and signs of a global slowdown. The impact of HIV/AIDS prevalence, while not fully measured, will no doubt further impact on the economy.
Consumer credit market overview South Africa’s consumer credit market has more than doubled to upwards of R800bn in the past five years. The growth in the market reflected the economic boom and lower interest rates. Many providers have started to extend credit to new entrants, particularly in the low-income market. Joint ventures and alliances, especially in credit cards, have also driven growth. The South African banking system is well developed, backed by a sound regulatory and supervision framework, offering a full range of services – commercial, retail and merchant banking, mortgage lending, insurance and investment. The market is dominated by four major players who have consolidated their dominance in the retail market. All of these players have adopted highly automated decision and business rules engines across their retail decision points. July 2005 saw the biggest foreign direct investment in South Africa, with Barclays PLC acquiring 53.96% (£2.6 billion) stake in one of South Africa’s largest banks, Absa. The entry of Barclays into the banking sector will not only bring new techniques and products to the market but will increase retail competition. Further to this, the buoyant economic conditions have raised speculation of further consolidation through either foreign entrants or by local mergers.
The retail sector is highly sophisticated, with credit granted to consumers ranging from personal loans, in-store cards and co-branded credit cards. The retail sector’s adoption of best of breed credit systems that automate decisions within the credit life cycle has underpinned the growth, and also enabled many retailers to move to profit based decisions. The Telco sector is dominated by one fixed line operator, Telkom, with the second fixed line operator only recently being licensed. The mobile sector is dominated by two major players, and only recently have there been new entrants. These providers have adopted the provision of voice, text data and other services that are packaged to the consumer. Number portability was introduced in November 2006, but to date churn has not increased, with consumer apathy diminishing the impact. Mobile providers are penetrating the banking market through the use of co-branded credit cards and the provision of payment/transactional services via handsets on the back of joint ventures with banks. The micro finance sector in South Africa grew out of the imbalance of access to credit in the market where low income groups were traditionally excluded from access to loans. The exemption notice to the Usury Act (the act that governs the prevailing rates for unsecured lending) stimulated growth in this segment of the market. The dominant players in this market have expanded their footprint in the traditional banking sector by providing both additional asset and liability products. National Credit Act Just as the banks were recovering from the implementation of the requirements of Basel II, the National Credit Act was passed in March 2006. This has had, by far, the largest impact on the consumer credit market in South Africa and affects credit providers and credit bureaux across all sectors of the market. In short, the act becomes effective on 1st June 2007 with the main intentions of:
The requirements for compliance throughout the credit system have been the focus of all players, with large amounts of resource and capital being expended. Further regulation in the form of Consumer Protection and Protection of Personal Information are all part of a legal framework that credit providers and credit bureaux will be required to operate within in the future. The South African consumer credit market has developed into one of the more sophisticated systems in the world, underpinned by sound economic and regulatory framework. Experian-Scorex has assisted credit providers and enabled them to operate optimally within the environment through the provision of consultancy, software and scoring services across the credit life cycle. Over the past decade, there has been a high adoption of scoring and best of breed technology. Experian-Scorex has invested in recruiting high calibre people locally to ensure we have the appropriate levels of skills, experience and expertise to partner our clients.Paul O'Dwyer - Managing Director, Experian-Scorex South Africa Statistics quoted in this article are from the sources listed below. Follow the links for more information, or you if you would like to contact Paul to discuss any topics covered, please click here |
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Experian-Scorex has operated in the South African market for more than ten years, during which time it has established itself as one of the premier decision analytics companies in the country. In this article, Paul O’Dwyer, Managing Director of Experian-Scorex in South Africa, identifies the key trends and challenges that credit providers face in a country that is a highly sophisticated and complex environment, that is home of the 18th largest stock exchange in the world by market capitalisation, and has, over the last decade, become the economic powerhouse of the continent.
