NCA sends another negative signal to investors, ratings agencies – economist

Staff Writer | Aug 19, 2019
Economist Dawie Roodt has warned that the National Credit Amendment Act, signed into law last week, is ‘nothing less than the beginning of expropriation’.

And the Banking Association of South Africa (Basa) has described the law as ‘a further example of the government acting in a way that continues to erode confidence in the SA economy’.

Roodt told IOL: ‘We’re on the threshold of seeing the expropriation of land without compensation. Now the African National Congress (ANC) government is fiddling with the financial system by condoning the write-off of anywhere between R13-billion and R20-billion (according to the National Treasury) of debt belonging to banks and other financial institutions.

‘These loans are as much property as anything else and (are) supposedly protected by article 25 of the Constitution. What kind of message is this sending to the ratings agencies such as Moody’s and Standard & Poor’s? As the constitution stands at the moment, there is a strong possibility that the law is unconstitutional.’

Basa warned that, in its present form, the Act ‘will restrict the ability of banks' to lend to the poor 'and increase the cost of credit'. Basa had 'petitioned the president not to sign the act in its current form and offered to meet with the presidency to further detail our reasons. We did not receive a response to the petition.’

It said the NCA – intended to provide relief to severely indebted South Africans – ‘is not a sustainable debt relief measure, as it fails to balance the rights of consumers and credit providers’.

‘Banks have a fiduciary duty to protect the savings and investments of their depositors, the workers, professionals and businesses of South Africa. Banks invest the country’s savings in productive infrastructure and employment-creating commercial ventures, for the benefit of all South Africans Banks cannot extend other people’s money as loans – for education and entrepreneurship – if they cannot be sure these loans can be repaid.’

By arbitrarily expunging debt, the Act effectively prevented banks from extending responsible credit, particularly to those in low-income households who often needed it most.

DA shadow minister of trade and industry Dean Macpherson said the ‘deeply flawed and possibly unconstitutional’ law would ‘increase the cost of credit for low income-earners, weaken the fight against illegal lenders and negatively disrupt the credit market while posing a financial risk to the State, when SA consumers are already under enormous financial strain’.

He added: ‘To make matters worse, the State has no idea what the cost to the economy and credit market will be and has been unable to clarify the cost implications for the State in implementing the Bill, including where the R100 million will come from to fund the National Credit Regulator and National Consumer Tribunal to fund their new mandates to process Debt Relief applications.’

 

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