South Africa’s PIC Says Some Lenders Have Abused Unsecured Loans

The Public Investment Corp., Africa’s largest asset manager, said South African consumers have been hurt by the practices of some lenders that provide credit not backed by assets.

“The PIC shares the views that the unsecured lending space has been abused by some lenders to the detriment of borrowers,” Elias Masilela, chief executive officer of the Pretoria-based PIC, said in an e-mailed response to questions yesterday, without naming the lenders. “Borrowers have also been particularly vulnerable due to the low levels of financial literacy resulting in them accepting unreasonable pricing.”

The PIC, which manages more than 1 trillion rand ($102 billion) on behalf of the South African government’s pension fund, holds more than 10 percent of both African Bank Investments Ltd. (ABL) and Capitec Bank Holdings Ltd. (CPI), the country’s two largest unsecured lenders, according to data compiled by Bloomberg. While Futuregrowth Asset Management has said it’s winding down holdings of bonds of unsecured lenders in development funds because the high-interest loans hurt consumers, the PIC declined to comment on its plans for investments in the companies.

“The PIC believes that unsecured lending is not bad in its own right -- it has a role to play in the South African economy,” said Masilela. “However, this objective can only be sustainably achieved through adherence to a strict discipline in the sector that is set and enforced by the regulators.”

Since November last year, the National Treasury, the National Credit Regulator and the Banking Association of South Africa have been working to develop rules to assess a consumer’s ability to afford a loan and how to recoup a loan. The NCR published draft guidelines for lenders last month.

“Promisingly, with the moves by the regulator to try and rein in on these errant practices of the industry, we believe it will be brought back into line,” Masilela said.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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