Debt-relief bill hits financial services stocks and retailers

Shares in financial services groups and retailers fell on Friday morning after President Cyril Ramaphosa signed into law a controversial bill aimed at extinguishing the debts of struggling low-income earners.

It emerged on Thursday that the president approved the National Credit Amendment Bill earlier this week, paving the way for debt relief for over-extended consumers who earn a gross monthly income of no more than R7,500 and have unsecured debt amounting to R50,000.

The Treasury estimates that the debt-relief proposals could result in the write-off of between R13.2bn and R20bn of debt.

Truworths International, which also reported a slump in profit late on Thursday, was 4.2% down at about noon on Friday at R55.49. Shares in rival fashion retailer TFG were 2.8% lower at R145.63, while Pick n Pay lost 1.1% to R59.91.

Lender Capitec was 2.4% down at R1,097.50 and Finbond Group lost 2.2% to R3.50. Absa was 1.3% down at R150.09, and Nedbank dropped 1.2% to R220.78.

However, Patrice Rassou, head of equities at Sanlam Investment Management, said the bill’s effect on the banking industry would be “negligible”. He said the reaction of bank shares had been “fairly muted” as the bill would affect a “very low income” segment of the market, which banks tend not to advance unsecured loans to.

Rassou said the trend has been for banks, including Capitec, to “migrate upwards” to cater for higher-income segments. He added that the legislation may have the unintended consequence of ultimately denying credit to those who fall into the R7,000-and-below income category.

Rassou said he understood the legislation would not be applied retrospectively, meaning the effect of it may only be seen one or two years from now when consumers who had been granted loans “fall on hard times”.

Nolwandle Mthombeni, portfolio manager at Mergence Investment Managers, said Capitec was the bank most likely to be affected. “Most of their client base sits in the zero to R10,000 monthly income group — more than 80% of their clients.” 

Other major banks are less exposed to that segment, she said.

“The bill will likely affect retailers more than banks. The main issue is that if they lend to someone and there is potential that this debt may get completely extinguished, they will not be getting the required revenue from that customer base,” Mthombeni said.

This meant it would not be worthwhile lending to that segment of the market. “Ultimately it affects the risk appetite of banks and retailers in that particular segment, and therefore it will also make it much harder for lower-income customers to access credit.”