Thursday, December 07, 2006

Mboweni slams credit-card binge

By Erika van der Merwe

Imagine the irony of blithely offering a central bank head a credit card, particularly at a time when he and his policy team are losing sleep over credit growth and household indebtedness.

It was an unamused Reserve Bank Governor Tito Mboweni who related the story of being offered a Voyager credit card while waiting for a flight; it seems that, like many other South Africans, he and his staff have been the target of banks’ and other institutions’ credit-card splurges.

Mboweni said that he had met with banking heads recently to discuss this “worrying trend” of the increasing availability of credit cards, and that the institutions appear to see nothing wrong with it.

He warned that if this rise in the availability of credit cards continued, the Reserve Bank may have to toughen up on its reserve requirements – the proportion of deposits that banks are not permitted to lend out.

“If moral suasion does not work, action will be taken,” he said. He refused to elaborate on the nature of the possible policy response.

Michael Power, strategist at Investec Asset Managers, says it seems the governor does not like using interest rates as his only policy tool and that he may well force banks to lift their cash ratios.

Besides, “the consumer cat is out of the bag and it is proving to be very difficult to get it back in”.

But Coronation Fund Managers’ financial sector specialist, Neville Chester, suggests that there is a more direct solution for the Reserve Bank’s concern about credit card extensions: it could increase the interest rate charged on credit cards.

A number of credit-card companies peg their interest rate at the level of the usury rate; this rate has not been adjusted this year, in spite of the 200 basis point worth of rate hikes implemented since June.

The Department of Trade and Industry sets the usury rate, which determines the maximum interest rate that financial services and retail companies can charge for credit. Micro-lenders are exempt from this rate, which will fall away with the implementation in June of the National Credit Act.

“It is no wonder that consumers are spending more,” Chester says; “the [interest rate] signal is simply not getting to consumers, which is part of the reason why we are not seeing a slowdown in consumer spending”.

One can argue that financial institutions are being given mixed signals about how they should be behaving in the lending market. While the Reserve Bank appears to be up in arms about credit growth, banks have signed the Financial Sector Charter, according to which they undertake to extend credit to a broader spectrum of South Africans.

“This is clear, for instance, from Abil’s numbers,” Chester says; “banks are attacking part of this micro-lender’s market by extending credit to lower income groups. ”

“Credit-card debt is a very attractive way to extend banking services to the lower end of the market, since this facility is cheaper than processing a personal loan application,” he says.

Listed banks lost ground on the comment by the Reserve Bank governor, on a day that the rand strengthened.

1 Comments:

Anonymous Anonymous said...

.
.
.
.
.
.
Good blog - very interesting!! I liked it so much I'm going to share this hush hush advice with you. Ever wondered how your neighbours are driving around in their brand new BMW or Mercedes cars - with their kids dressed in all the latest named gear and foreign holidays aplenty?? Well they discovered the secret to the extra online income.

If you are looking for a free tool to attract loads of free links to your blog or website then congratulations I've got the solution for you - and it is FREE!!

My website specialises in loans and to drive traffic to my website I was searching around the internet for absolutely ages looking for SEO tools and ffa submission sites to fire my site up the Google search engine - unfortunately these doing work and in fact had the opposite affect plunging my site down the rankings like it had a heavy weight attached!!, then I signed up for this free superb traffic generating tool - I now have loads of hits to my websites/blogs and my site is shooting back up the Google rankings quicker than ever before.

Consequently this saw my affiliate commissions shoot through the roof - meaning lots of extra money coming in for my family - I bought my first Mercedes car on the proceeds of my online campaign.
Sign up now - it's free.
. Sorry if this information is of no use to you but seeing as you have the anonymous feature enabled I thought I should share this free bit of essential promotional advice with you and would hope you would do the same for me and others who want to boost their online internet income.

I hope the tool will serve you equally as well as it has me - it's free!!

Best of luck, cheers for now, dave.
.
.
.
.
.
.

10:18 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home