Debt relief. Picture: ISTOCK
Debt relief. Picture: ISTOCK

Banks forfeit billions of rand each year in their effort to assist consumers in financial distress who find it difficult to repay their loans.

The Banking Association SA (Basa) made this submission in its latest comments on the draft National Credit Amendment Bill, which is under discussion by Parliament’s trade and industry committee.

The association noted that banks had forgone R3.4bn in interest and fees in 2016 and R4bn in 2017, to assist consumers in financial difficulty.

These debt-relief measures include repayment arrangements, temporary payment holidays and concessions on interest rates, fees and charges.

The bill provides for the extinguishment of debt of heavily indebted consumers who earn a gross monthly income of no more than R7,500, have unsecured debt amounting to R50,000 and have been determined as critically indebted by the National Credit Regulator.

The banking industry is opposed to the proposal on the grounds that it will result in a restriction of credit to the low-income section of the market and that the extinguishment of debt represents an unconstitutional deprivation of property.

Treasury has estimated that the proposals of debt relief could result in the write-off of debts of between R13.2bn and R20bn, which is the total amount of debt falling under the debt-extinguishing provisions of the bill.

A study commissioned by Treasury in October 2017 found that about 9-million borrowers would meet the eligibility criteria for debt relief set out in the draft bill.

However, only 1.5-million of these were found to be chronically over-indebted and nine months or more in arrears on all their loans.

According to the National Credit Regulator, the total outstanding gross debtors book of consumer credit for the quarter ended December 2017 was R1.76-trillion.

This credit was extended by banks, retailers, nonbank financiers and other credit providers.

Basa noted in its submission that as at December 2016 the total debt review portfolio across the major retail banks stood at R47.3bn, with reduced interest rate concessions amounting to about R3.4bn being provided to over-indebted consumers in that year.

As at December 2017 the figures were R51.4bn and R4bn respectively.