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S. Africa Credit Amnesty Negative for Lenders, Moody’s Says

South Africa’s plan for an amnesty on credit information may hurt the ratings of companies that sell asset-backed securities, Moody’s Investors Service said.

South Africa’s cabinet last month approved a recommendation to expunge information on “cured arrears” -- debts that were in arrears but have been repaid -- from the records of about 1.6 million consumers. That would make it more difficult for lenders to predict default risk and reduce the incentive for existing borrowers to repay debts, Moody’s said in a report today.

“We consider the recording of cured arrears as a significant factor when assessing the quality of data that credit bureaus provide,” Alberto Barbachano, a Madrid-based senior analyst at Moody’s, wrote in the report. “The removal of adverse credit information from public records is a credit negative” for transactions involving securities backed by assets and residential mortgages, he said.

The South African cabinet last month said the amnesty would improve access to credit for consumers. Removing those records would heighten risks for lenders and increase costs, the Banking Association of South Africa said at the time.

While there may not be an immediate impact on the asset quality and credit profile of South African banks, “over the longer term, it could mean that banks may no longer capture the full credit history of a borrower, which could potentially compromise the level of their good quality new lending,” Nondas Nicolaides, a senior analyst at the ratings company in Cyprus, said in an e-mail.

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