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South Africa May Fine Banks for Violating Unsecured Loan Rules

South Africa may fine banks that violate new rules governing unsecured lending, according to the association representing the country’s lenders.

“There may be fines -- we’ll have to put it to the regulators,” Cas Coovadia, managing director of the Banking Association of South Africa, said in an interview at the World Economic Forum in Cape Town yesterday. “There has been some abuse of unsecured lending.”

The association agreed with South Africa’s National Treasury on Nov. 1 to tighten rules for loans not backed by assets after the number of consumers with bad debt rose to a record. African Bank Investments Ltd., the country’s largest provider of unsecured loans, said on May 2 that first-half profit declined after higher bad debt charges.

“I don’t think we have a bubble bursting,” Coovadia said. “African Bank is not systemic for the industry. If we tighten the rules and make it more transparent, the banks will be happy because it removes the reputational issues around unsecured lending.”

The amended rules for the industry will cover so-called garnishee orders, which lenders obtain from magistrate courts to instruct employers to dock workers’ salaries and pay the money over to creditors.

The industry will be in a position to “introduce some message of confidence in unsecured lending,” by the middle of June, Coovadia said.

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