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South Africa’s Unsecured Credit Boom May Not Bust, RMB Says

The growth in loans not backed by assets in South Africa may not follow a boom-and-bust cycle, according to RMB Morgan Stanley analyst Greg Saffy.

“We continue to see a soft landing in the unsecured market, evidenced by a slowdown in volumes,” Johannesburg-based Saffy said in an e-mailed note to clients today. “We foresee a drop off in volumes and increase in bad debts, while the two key risks to the sector remain affordability and the rolling of debt.”

With Basel rules demanding that banks change their capital structures and unsecured loans offering better profit margins than asset-backed lending, the South African unsecured credit market grew fourfold in the three years to 2012. This prompted economists at Investec Plc and Macquarie Group Ltd.’s South African unit to question whether a bubble was forming.

African Bank Investments Ltd., South Africa’s largest provider of unsecured credit, “is mis-priced,” Saffy said, after the stock fell the most of all domestic banks in the past 12 months. “The bank is currently re-pricing up on longer-term loans for event risk, which is expected to support margins, and we believe that African Bank’s loans are competitively priced relative to peers,” he said, rating the share a buy.

African Bank gained as much as 2.6 percent to 31.02 rand, heading for its biggest gain in a month in Johannesburg trading.

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