Banks have adjusted their approach to lending to take into account the effect of the credit amnesty, industry experts confirmed.
Banks’ credit rating models are often based on historical information, which would be less detailed now. As a result they have tightened their lending criteria, KPMG senior economist Lullu Krugel said.
The credit policy changes would be more important for new clients, because banks tended to retain negative credit history of their existing clients, said Krugel.
“People are under the impression that banks will no longer have any adverse credit information against their names – this is simply untrue,” says Kate Thambiran, MD of LUCID Clear Credit.
“What people seem to have missed is that credit providers are not required to remove adverse and judgment information that would be deleted from credit bureaus, from their databases,” adds Thambiran.
Standard Bank pointed out that credit providers were not required to remove this information from their databases. “In effect, what this means is that credit providers will not have access to the adverse descriptors in their decision making, but can effectively use their own,” Standard Bank said in response to queries.
The amnesty requires that all credit-active consumers’ payment profiles will still be kept by the credit bureaus and accessible to lenders.
These profiles reflect how a consumer pays their accounts each month. Negative payment history of consumers will remain.
Standard Bank said the removal of the adverse credit records of consumers introduced unknown risk and agreed that banks have to tighten their approach to risk.
“Many consumers assume that the credit amnesty will mean that it will become easier to apply for loans and to access credit,” Kevin Hurwitz, the chief executive of payday lender Wonga.com South Africa, said.
“If anything, most credit providers will be implementing stricter credit vetting processes.”
Christoph Nieuwoudt, the chief risk officer at FNB, said the bank predominately lent to customers who already had a banking relationship with it. As a result, FNB was confident that the removal of adverse listings would not have a major impact on the bank or its customers, since FNB would rely predominantly on its own information, pertaining to the repayment history and credit risk of its customers.
Zodwa Ntuli, the Department of Trade and Industry’s deputy director-general for corporate and consumer regulation, said credit bureaus have confirmed that only a handful of paid-up judgments had been removed because not many people had them.
Thambiran also points out that “information like debt review data, SARS judgments, administration and sequestration orders and rehabilitation notices on the credit report, will not go away because these are excluded from the amnesty.”
The credit bureau said that for consumers without much of a payment history, it would now be impossible to differentiate between those who had benefited from the credit amnesty and those for whom it had made no difference.
“The reality is that this ‘thin file’ consumer will be seen as a higher risk, negatively affecting the consumer whose profile remained unchanged,” the company said.