AFRICAN BANK INVESTMENT LIMITED
(REGISTRATION NUMBER: 1946/021193/06)
GOVERNMENT DECISION ON PAYROLL DEDUCTIONS (PERSAL)
In order to clarify the situation with regard to the announcement of government
on Friday, 9 March 2001 and subsequent media reports, the following factual
information is provided:
1. Government has decided in principle, to conditionally allow an extension of
the run-off of existing loans on the PERSAL (payroll) system. This constitutes
a significant shift from their previous position which was to cancel all
existing deductions on
30 June 2001.
2. Conditions to apply are under negotiation with government and are likely to
include:
2.1 Agreement with the lending industry to launch a loan consolidation and
rescheduling programme to assist the small minority of state employees who have
overextended themselves.
2.2 Consolidation / rescheduling targets which the industry have to meet to
ensure continued run off of the book.
2.3 An agreed maximum pricing level loans below R10000 for their employees.
Loans above R10000 are already capped at 22% p.a. in terms of the Usury Act
provisions. The price level for Usury Act Exempt Loans (below R10000) for
government employees availing themselves of these products, is under
negotiation between the industry and government (as employer), a normal process
applicable to all private sector payroll agreement negotiations.
2.4 A possible restriction on the number of lenders who will be allowed to
provide consolidation assistance to state employees on the payroll.
2.5 Government being satisfied that the principles established can be
effectively policed.
3. Government has decided to impose a 25% of basic pay ceiling on loan
instalments, within which consolidation loan arrangements must be accommodated.
This is in line with African Bank credit policy and will therefore have no
effect on our present lending practice.
4. Government has indicated that it at present would prefer not to allow new
lending on payroll but indications are that if the consolidation programme runs
successfully, this may in future be possible. The matter is also still under
discussion between the industry and government.
5. The new position of government is positive for African Bank Ltd, in the
following respects:
5.1 The extended run off period (post 30 June 2001) will significantly reduce
the default risk on affected loans.
5.2 The opportunity to engage in a loan consolidation process allows the bank
to assist overextended borrowers who, at present, cannot be assisted due to the
freeze on the payroll. Their only option at present is to default - the new
arrangements will offer them an alternative enabling them to avoid the negative
consequences of default, bureau listings, judgements and garnishee proceedings.
5.3 The possibility to in future do new business on the PERSAL system. State
employees are being serviced off payroll at present but as a consequence,
access smaller loans over shorter terms at significantly higher prices.
For further information, please contact
Johan De Ridder
Executive Director marketing
African Bank Investments Limited
Tel: +27 11 256 9000
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