July 10, 2020 / 10:11 AM / 25 days ago

South Africa's banks mull how to avoid loan defaults when virus relief ends

JOHANNESBURG (Reuters) - South African banks are looking at options ranging from debt consolidation to new ways of leveraging equity to avoid defaults when coronavirus-related debt relief measures end, industry officials said.

The banks gave customers in good standing relief on loans during the pandemic, including payment holidays of up to three months. But some consumers are still in trouble.

Some banks have offered extensions, while others like Capitec (CPIJ.J) offered to refund interest accumulated during payment holidays.

Jacques Celliers, CEO of FirstRand’s (FSRJ.J) retail division, said the lender was worried about the impact of job losses and wanted to avoid a wave of property evictions that would affect prices.

Mortgages make up 59% of 489 billion rand ($28.88 billion) in loans considered at risk, according to the Banking Association of South Africa (BASA).

“We’ll have to be very clever between all of us as to how do we navigate the property game,” Celliers said.

Options could include leveraging the equity in properties, including family members’ properties, in new ways, using pensions or granting term extensions on mortgages, he said.

Anton de Wet, chief client officer in Nedbank’s (NEDJ.J) retail and business bank, said debt consolidation on home loans was a possibility and that term extensions, as well as other solutions, could be discussed with customers individually.

Standard Bank (SBKJ.J) also said its solutions were based on individual clients’ circumstances. Absa (ABGJ.J) said it would make an announcement on its post-debt relief plans in the near future.

Banks have already warned of rising bad loans: Capitec, for instance, said its credit impairment charge was 145% above expectation and it had increased provisions by 3.3 billion rand since February.

Some banks have applied a less-stringent approach to provisioning for loans granted relief after regulators allowed more flexibility in strict new accounting rules.

BASA managing director Bongiwe Kunene said higher provisions could be triggered if consumers can’t keep up with payments following the relief period.

(This story corrects BASA managing director’s name, title in final paragraph)

Reporting by Emma Rumney; editing by Emelia Sithole-Matarise and David Evans

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