A SLOWDOWN was noted in the otherwise rapidly growing unsecured lending by commercial banks since January this year owing to the tightening of credit standards by commercial banks after the closure of the data bureau.

In its financial stability review 2017 the Reserve Bank of Fiji noted that Fiji’s lending activity for purposes other than housing or motor vehicles, termed as the unsecured credit market, had been growing rapidly over the past years, largely fuelled by the growing demand for unsecured loans with the prevalent low interest rate environment.

According to the review the risks relating to the acceleration in the growth of unsecured lending by the banking sector over the past years had been a potential concern for financial stability, especially as the unsecured credit growth rate had been hovering around 30 per cent.

It said in June the unsecured credit growth rate slowed down to -4 per cent, indicating a significant slowdown in unsecured lending.

The central bank believes the slowdown could be attributed to the tightening of credit standards by commercial banks after the closure of the data bureau as indicated in the Credit Conditions Survey June 2017.

Meanwhile the overall drop in the banking sector’s unsecured lending was largely contributed to the decrease in unsecured lending by commercial banks only as credit institutions’ unsecured lending continued to increase rapidly.

The sharp increase in unsecured lending by credit institutions was mainly driven by a new entrant in the credit institutions industry.

The central bank also noted that high unsecured credit extension by credit institutions over the past two years had led to higher defaults.

According to the review this may be largely fuelled by the absence of a credit reporting agency, which resulted in unsecured borrowers defaulting on their existing payments, and customers who were financed from the non-banking sector turned into delinquent customers.

“As at June 2017, the non-performing unsecured loans as a percentage of total unsecured loans for the banking sector stood at 2.7 per cent, which is considered within manageable levels and does not pose a major threat to the Fijian financial system,” the review stated.

It said while the risks relating to the unsecured market within the regulated banking industry is identified easily, it becomes difficult to ascertain the same for the unregulated nonbanking sector where the risks might be developing.

Therefore, the Reserve Bank of Fiji in June 2017 initiated discussions with some major finance companies not under the bank’s regulatory ambit.

UnsecuredCredit – BingNews