Abstract
This paper examines the impact of the new National Credit Act (NCA) No. 34 of 2005 and the global financial crisis on credit extension provided by all monetary institutions in South Africa. The econometric approach is estimated by way of ordinary least squares while controlling for several macroeconomic factors. The findings indicate that there was a general increase in the consumer credit provision in the period subsequent to the full implementation of the Act. The promulgation of the Act increases credit card, bank overdrafts, other conventional loans and total credit to the private sector categories. The implementation of the Act fails to reverse this trend but exerts a negative influence on lease finance and the global financial crisis has significant negative effects on most of the credit provision categories. The paper seeks to investigate an under-researched area on the interrelatedness of credit provider regulation, financial crises and credit extension.
Highlights
Banking sector regulation seeks to ensure that private and collective interests are safeguarded, thereby promoting a sound and reputable domestic financial sector (Gully Hart, 2005)
The second phase is the most important, since this paper aims to establish whether the National Credit Act (NCA) and the global financial crisis have impacted significantly on credit provision by South African monetary institutions
It is important to observe the impact of the NCA while controlling for other factors such as real interest rates, real Gross Domestic Product (GDP), real effective exchange rate, and the inflation rate
Summary
Banking sector regulation seeks to ensure that private and collective interests are safeguarded, thereby promoting a sound and reputable domestic financial sector (Gully Hart, 2005). From the South African perspective, the process of credit provision has been under the spotlight. This is as a result of financial institutions’ failure to uphold the principles of responsible lending, a situation that was deemed the prime cause of high levels of indebtedness. The new National Credit Act No 34 of 2005 (NCA) was fully implemented on 1 June 2007 to prevent banks and other credit provision institutions from lending recklessly, a situation where the lender fails to conduct an affordability assessment, and to ensure that consumers of credit do not borrow more than they can afford. The various restrictions of the NCA and its other provisions may necessitate a change in the lending patterns of South African credit providers
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