JOHANNESBURG, May 14 (Reuters) - South African banks face an increase in bad loans due to rising interest rates and the prevalence of unsecured lending, ratings agency Moody's said on Wednesday.
The central bank hiked its repo rate by 50 basis points to 5.5 percent in January and analysts polled by Reuters forecast the benchmark rate to rise again to 6.5 percent in 2015.
That will put more pressure on households whose debt levels are equal to almost three-quarters of their disposable incomes.
Moody's forecast banks' non-performing loans to rise to 4.2 percent of gross loans in 2014-15 from 3.7 percent at the end of 2013.
One small lender, African Bank, is already showing the strain. Last week, the country's biggest provider of unsecured loans warned it would swing to a first-half loss because of higher-than-expected bad debt.
Higher interest rates and other sources of income such as fees and commissions will buttress revenue and net interest margins - a measure of how much money banks make from their loans - but profitability will come under pressure as the lenders have to make more provisions for souring debt, Moody's said.
South Africa's no. 4 lender Nedbank has said its net interest income - the difference between interest received on loans and paid out on deposits - was up nearly 8.7 percent in the first quarter.
South Africa's five biggest banks reported a decline in impaired loans, which fell to 84 billion rand in December 2013, or 3.1 percent of total loans, according to the central bank.
But impaired credit is a bigger problem at smaller banks, ballooning to a peak of 24 billion rand, or 17.4 percent of total loans, in July 2013.
Unsecured lending accounts for almost 12 percent of total gross credit exposure in the banking sector, according to central bank data.
The overall outlook for South African banks remains negative, Moody's said, due to subdued economic growth, weak consumption and protracted labour unrest. ($1 = 10.3249 South African Rand) (Reporting by Helen Nyambura-Mwaura; Editing by Erica Billingham)