From Fitch

A proposal by South Africa to reduce the amount of information available from credit bureaus will hurt non-banking institutions more due to their heavy reliance on the bureaus than commercial banks that are being targeted by the changes, global rating agency, Fitch, said on Tuesday.

The South African cabinet proposed in late September an amnesty that will expunge information on debts that were in arrears but had been repaid from the records of about 1.6 million consumers, saying the amnesty would improve access to credit for consumers.

The move has been criticized as a government ploy to win votes at elections in 2014.

“The proposal may introduce some moral hazard into borrower behavior that could affect banks’ loan portfolio performance, but we do not think this would be sufficient to fundamentally affect asset quality over our rating horizon,” Fitch said in a statement.

“Still, it could raise bank origination costs, and restrict rather than boost credit extension.”

Fitch said removing borrowers’ records would heighten risks for lenders and increase costs that would make it more difficult for lenders to predict default risk and reduce the incentive for existing borrowers to repay debts.

During a regular Financial Stability Review last month the Reserve Bank of South Africa said the proposal could have a negative effect of forcing banks to tighten lending, which could end up stifling the country’s growth, sentiments   Moody’s Investors Service concurred with, adding that a credit amnesty may affect the ratings of companies that sell asset-backed securities.

“Because the effect would be greatest on unsecured non-bank lending, we do not foresee a major impact on Fitch-rated structured finance deals,” Fitch said.