A new South African law bringing relief to overindebted, lower-income consumers is unlikely to deal as severe a blow to banks and retailers that some investors may fear, according to Bank of America Merrill Lynch analysts.
Banks would typically classify debt that qualifies under the new law under impairments, mitigating its effects. Legal challenges from creditors are likely, while the national credit body will need to add operating capacity, slowing its implementation.Retailers with higher proportions of customers using credit may feel the effects in slower growth, with the targeted income groups accounting for an average of 40% of shoppers at The Foschini Group, Truworths International and Mr Price Group.
“Credit accounts for 70% of Truworths Africa sales, 45% at Foschini and 18% at Mr Price,” BofAML said, adding that “both Foschini and Truworths have already made provisions for this bill in their provisions for bad debts in their last set of results.”
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