JOHANNESBURG (Reuters) - A decision by South Africa to expunge the names of some people with bad credit records will have a negative impact on the ratings of some of the country's securities, ratings agency Moody's said on Thursday.
Cabinet agreed last month to the removal of the names from public records, especially for those that have already paid up. The move was criticised as a government ploy to curry favour ahead of an election in 2014.
Many South Africans are steeped in debt, with household debt accounting for three quarters of disposable income. Banks have been tightening unsecured lending, drying up an important source of funds that have helped some people make ends meet.
Moody's said removal of the information from public records was credit negative for residential mortgage-backed securities (RMBS) and asset-backed securities (ABS).
"It will reduce the amount of information available to originators to assess the creditworthiness of new borrowers, and may impede responsible lending and borrowing practices, which will increase credit risk," it said in a statement.
The clean-up could also reduce the incentive for borrowers to meet their obligations, while adding to the limitations on the work of credit bureaux.
About half of the 20.2 million records credit bureaux held by the end of June were classified as in "good standing" while the other half were "impaired records", according to the National Credit Regulator.
Last October, Moody's downgraded the ratings of 56 securities across 17 South African RMBS and ABS after cutting the country's sovereign credit profile.