PROFILE
The banks are on top of it;
this is not a bubble. This is
something we can manage.
are borrowing money for housing or education, he doesn’t consider
it a bubble. To make sure it is sustainable, for both parties in the
equation and for the stability of the local banking sector, he says, it
just needs management.
The key to averting trouble in unsecured lending (or in other areas
of banking), Sokutu thinks is good data, and the ability to use that
data further down the line. As the number of South Africans making
use of debt financing grows, there is perhaps an increase in risk,
but there is also an increase in the amount of data to be had. That
makes it a matter of constant analysis of trends before they can turn
into disasters.
‘We are tracking our clients through credit bureaux to see how
much credit they are taking elsewhere,’ he says, ‘but at the same
time, we’re also looking at those who are not necessarily our clients,
to see what is happening generally.’
If what is happening points to trouble in any specific sector of the
market or manufacturing, African Bank will hopefully be able to
see the potential for job losses before it happens, and pull back from
that affected sector. ‘Because we lend on a highly distributed basis
across sectors, if there is a dramatic collapse of the economy across
multiple sectors we will be greatly affected. If it is just one sector
that’s not too big a deal, we can handle that.’
As long as people keep their jobs, he believes, their ability to make
their debt payments will remain roughly the same. Inflation may eat
into real earnings, but Sokutu has faith in the Reserve Bank, which
he says has proven itself to be a robust institution, and has even
showed grace under political pressure to move away from inflation
targeting. Interest rates may tick up from their historic low, but he
is comforted by the fact that rates will move gradually, without the
kind of dramatic spikes that is anathema to affordability, and will be
well-signalled before the fact. So even though 2013 is hardly likely
to be a bumper year, it shouldn’t bode ill for African Bank, or the
sector in general.
The real question isn’t what will happen to those already taking
advantage of debt, he says, but where future growth will come from.
‘What concerns me about the macro-economic environment is
whether we’ll be able to create enough jobs going forward in order
to deal with unemployment and with poverty, and whether we’ll be
able to stop those retrenchments,’ Sokutu says.
10
THE BANKER
Edition 3
Even though the economy hasn’t been blooming – and even
though car financing and mortgage uptake has been flat or
declining in recent years – unsecured lending towards the bottom
of the market has shown plenty of growth. The government, and its
relationship with trade unions representing those it employs, has
something to do with that.
‘One discussion point yesterday [in the meeting with Gordhan]
was that there has been above-inflation increases in wages in the
public sector for two or three years now, which made it relatively
easy for public sector employees to access credit, with more
disposable income,’ says Sokutu.
But that can’t continue indefinitely, and eventually the growth in
the market for lending in the range African Bank targets will start
to track general economic growth. As a bank it could postpone that
day with innovation in products, and smart structuring of finance,
but that road too must come to an end. Eventually there will have
to be employment growth, or even greater cannibalisation among
lenders, and that is already starting to reach levels that Sokutu
thinks needs watching.
‘Competition takes place and you do what you have to do,’ he
says. ‘The concern is where it all ends. What happens if we all go for
the same customers?’
He leaves his own question unanswered, but the implication
is clear. Either the lenders or the borrowers, or both, will suffer the
consequences of such intense competition. That is if government
regulation doesn’t intervene, but perhaps that is another area in
which Sokutu is somewhat more bullish than the average banker.
‘Government is interested in increasing access, to get more
people using credit,’ he says. ‘On the other hand the government
is obviously uncomfortable with the potential impact of players in
the market on customers. We welcome that, because we think it’s a
good thing for us as an industry to clean up the house. We’ll only
become concerned if the regulations become too restrictive. So far
they haven’t been.’
Besides the growth in job numbers in South Africa, and minor
concerns about fiscal policy, there is only one thing that really
worries Sokutu: the troubles far afield, in Europe and the USA,
which could affect the flow of money his bank relies on.
‘Unfortunately those problems have a disproportionately high