1. Presentation on Unsecured Personal Loan (UPL) Market
For presentation to the Trade and Industry Portfolio Committee
27 February 2013

2. Topics UPL Project Safety and Soundness vs Consumers Overview
Credit market Analysis
Unsecured Personal Loans
Consumer Credit Index
Consumer Credit Records
Debt Counselling Statistics
Level of Competition
Compliance
Conclusion
Recommendations

3. UPL Project
OBJECTIVE
The objective of the research undertaken is to determine the factors that are causing the increase in unsecured personal loans (from both the supply and demand side perspectives) and the implications thereof for consumers, credit providers and the credit industry.
This was designed to assist the NCR to gain an in-depth understanding of the growth in unsecured personal loans and inform policy on consumer credit competency, market stability and lending practices.
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 1

4. Safety and Soundness vs Consumers
Financial System
Prudential regulation
Primary measure: Banks
Safety and soundness
Consumer Credit
Consumer protection regulation
Primary measure: Level of indebtedness;
Reckless lending
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers
Representations made
Banks
BASA
Banking regulator
NB: Outside of project scope 2

5. Overview Credit Supply Credit Demand
Affordability assessment guidelines
Disclosure of total cost of credit
Monitor and enforce compliance
Market practices review
Credit provider internal controls
Demand for UPL
Monitor level of “overdues”
Consumer education initiatives
Protection from undesirable practices
Access to credit
Credit usage
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 3

6. Credit Market Analysis
UPL book growth R43.3bn, 49.3%
Q y-on-y
UPL book growth R38.9bn, 38.5%
Q y-on-y
Mortgages book R41.3bn, 5.3% Q y-on-y
Mortgages book R33.7bn, 4.3% Q y-on-y
The following issues informed the initiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 4

7. Unsecured Personal Loans
UPL Granted According to Income Level of Consumers
The majority of UPL granted to middle income - >R3.5-R30k
Most significant category being >R7k-R15k segment % 5

8. Consumer Credit Index
Source: TransUnion Consumer Credit Index, Q4, 2012
Improving Credit health until quarter 2
Deteriorating credit health in quarter 3 and 4 with some improvement in quarter 4 6

9. Consumer Credit Records
Source: NCR statistics
Increasing impaired records over the period to Q1 2010
Consistent sideways movement at this level thereafter with uptick in Q3 2012
9.2 million consumers with impaired records out of a total credit active population of 19.7 million
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 7

10. Debt Counselling Statistics
The overall amount distributed to date since inception is over
R9 billion;
The number of applications to date(end of Jan 2013) is ;
As at Dec 2012, the number of consumers loaded on the PDAs was and of this number made payments which represents 77% of consumers loaded.
Payment Distributions for 2012/13
R729 m
R734 m
R749 m 8

11. Level of Competition Comparative quotes Pricing Credit life
Some consumers do not generally “shop around”
Quotes and pre-agreement statement from different providers
Installment focus of consumers.
Pricing
Average interest rate 23.5%
Differentiated pricing across loan size categories
Some pricing at the margin.
Credit life
Cost not disclosed as part of cost of credit in an integrated manner.
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 9

12. Compliance Policies and procedures Credit agreements
Confirmation from 10 largest providers
Credit agreements
Some disclosure recommendations for development
Affordability assessments vary significantly across credit providers
Affordability guidelines
Principle based guidelines recommended
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 10

13. Conclusion
Differentiate between financial system and consumer protection
Consumers remain vulnerable to economic conditions
Level of consumers with impaired credit records
UPL current growth level sustainability
Credit life disclosure
Further consumer research needed
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 11

14. Recommendations Credit Demand Credit Supply Consumer study
Consumer behaviour
Credit demand analysis
Credit usage
Monitor level of unsecured lending against consumer indebtedness
Consumer education
Encourage healthy consumer credit behaviour
Implications of credit
Supervisory investigation
Governance focus
On-site review
Compliance review
Principle based affordability guidelines
Credit Demand
Credit Supply
The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers 12

15. Thank You The following issues informed the iitiation of the project
Growth in unsecured credit
Changing market structure and performance
Extent of consolidation of existing credit versus real new growth
Personal loans only, but in context of total credit product mix
Credit pricing
The extent to which cross- subsidisation is occurring between various transactional and credit products offered
Affordability issues
Drivers of uptake in personal loans
Use of funds - productive or consumption
The extent of underpinning assets purchased with secured credit products
Dti and NCR – measures for mitigation of risks inherent in the changed unsecured credit growth
Appropriate response and informed opinion
Communication with relevant stakeholders
Relevant interventions from the NCR
Stakeholder definition
NCR registrants, media, other regulators, Government, industry associations, consumers