Absa expects bad debts to worsen in a year

28 November 2012

April 19, 2007
By Vernon Wessels

Johannesburg – Absa expected bad debts as a percentage of total loans to worsen from 44 basis points at the end of last year to 75 basis points over the next 12 to 18 months, a top official of the banking group said yesterday.

The lender had an impairment ratio of 31 basis points in 2005, a record low, said Louis von Zeuner, Absa’s executive director for retail banking.

“We will remain cautious and anxious in the next four months, as this will give Absa enough time to asses whether its bad loans target might come under pressure,” said Von Zeuner. “I’m hoping we will stay within the 75 basis points ratio.”

It took at least nine months for interest rate movements to affect consumers, Von Zeuner said. New credit card processes adopted since the takeover by Barclays in 2005 had helped Absa better manage its loans, which were monitored and chased almost daily, he said.

Absa’s bad loans ratio at its credit card unit would probably worsen to 3.5 percent from about 2 percent, said Von Zeuner. “We will see higher bad debt levels but this is part of our strategy and we’re comfortable with that.”

Absa expects bad loans to stay within its target after the introduction in June of the National Credit Act, which makes it easier for consumers to stop repaying debt.

The act allows indebted consumers to ask a magistrate to temporarily freeze or reduce their payments.

The debt counselling process was “one part of the act that is not 100 percent defined and clear”, said Von Zeuner.

“There will have to be a couple of test cases to show some of the teething problems. Time will tell in terms of the impact.” – Bloomberg

Comments are closed.