Nicolette Dirk, finance writer, Justmoney.co.za
Transactional Capital, taxi industry financer and credit lending company, will no longer be part of the unsecured lending industry.
Dave Hurwitz, CEO of Transactional Capital, told City Press that they have decided to leave the unsecured market because the pressure on consumers is causing them not to pay back their debts.
In their interim results for the six month period to March 31, announced on Tuesday, they stated that the South African consumer economy continued to soften during the first half of the 2014 financial year as employment and real wage growth slowed, fuel and electricity prices increased, exchange rate related inflation eroded disposable income and labour unrest escalated.
“The Monetary Policy Committee increased the repo interest rate by 50 basis points to 5.5% for the first time since 2008, placing added pressure on the South African consumer,” said Transactional Capital.
The company will no longer provide unsecured credit to consumers despite their headline earnings growth by 28% to R148 million, a net interest income increased of 20% to R395 million, driven by a 14% growth in gross loans and advances to R6 149 million and an increased net interest margin of 13.1%, effected in part by a lower average cost of borrowings of 10.3%. Their non-interest revenue increased by 11% to R523 million. Overall Transactional Capital made a profit of R251 million.
But according to reports, Hurwitz did not rule out the possibility of returning to the unsecured lending market.
“For the next two years, we will be outside that space, but if we find something that is a differentiated offering, we could consider it. We took a deliberate decision to focus on income-producing assets of SMEs (small and medium enterprises) and no longer financing of consumption,” said Hurwitz.
Why are South Africans battling to payback their debt?
Paul Slot, president of the Debt Counsellors Association of South Africa (DCASA), said the increasing cost of living is making it more difficult for consumers to payback debt.
“People are using new debt to repay old debt which keeps them in the debt cycle. This will continue until lenders stop providing unsecured credit,” said Slot.
He added that people who use 35% or less of their disposable income to service debt won’t be in the red when it comes to their finances. You run into trouble when between 35% and 50% of your income is used to take care of your monthly debt.