Grant­ing home fi­nance could help banks

While ‘score card’ sys­tem of vet­ting bond ap­pli­cants has mer­its it must look at new econ­omy

Weekend Argus (Saturday Edition) - - PROPERTY -

SHARE an­a­lysts and fi­nan­cial ad­vis­ers could soon reach a stage where they start query­ing at what level bank div­i­dends will be paid in the com­ing year, says Rob Lawrence, na­tional man­ager of Raw­son Fi­nance.

“Ev­ery SA bank has had to write-off huge bad debts and all those in­volved in hous­ing fi­nance have con­se­quently clamped down on loans. This dou­ble whammy of big write­offs and low lend­ing pat­terns will in­evitably af­fect their prof­its.

“Money is the banks’ com­mod­ity and if a bank does not sell its money, the only other way it can make prof­its is through fee gen­er­a­tion – which is also un­der pres­sure at the moment.”

In the cir­cum­stances, says Lawrence, it does not make a great deal of sense that to date 50 per­cent of bond ap­pli­ca­tions for homes are be­ing re­jected.

“The cur­rent crop of write­offs were bad loans that were made in good times – but we are now in a dif­fer­ent mar­ket and it needs to be recog­nised as such.

He says banks’ re­jec­tion rates could, by now, be 20 per- cent lower with­out un­due risk to them. Home fi­nance could be mak­ing a greater con­tri­bu­tion to banks’ prof­its, which will be well down on pre­vi­ous years.

While the “score card” sys­tem of vet­ting bond ap­pli­cants has mer­its, it of­ten fails to recog­nise the re­al­i­ties of the new econ­omy, says Lawrence.

“For ex­am­ple, the score card places a high value on sta­bil­ity and this is mea­sured largely by the length of time a per­son has been in one job, ei­ther his cur­rent po­si­tion or a pre­vi­ous po­si­tion.

“Free­lance op­er­a­tors who work on limited con­tract pe­ri­ods are looked at with sus­pi­cion – but in to­day’s busi­ness scene, work is in­creas­ingly out­sourced.

He says many of the most com­pe­tent work­ers move from job to job in well paid con­sul­tan­cies but get­ting them a bond is “nigh im­pos­si­ble”. The bank should be con­sid­er­ing mak­ing it eas­ier to give bonds.

Some of the po­si­tions pre­vi­ously seen as sta­ble, for ex­am­ple, in fi­nance, in the air­ways, in the mo­tor ve­hi­cle sec­tor, in the banks and even in govern­ment, are no longer 100 per­cent se­cure. There have been, and will be more cuts here too.

Lawrence says he is not ad­vo­cat­ing that the banks in­dulge in reck­less lend­ing, but the bot­tom line is that they need to lend to make profit.

“The changes I am propos­ing would as­sist them as well as home­buy­ers. When the fi­nan­cial an­a­lysts do be­come crit­i­cal of bank fi­nan­cial per­for m- an­ces, this might well lead to an eas­ing up of the post-NCA po­si­tion adopted by the banks.

“This will be a re­lief for bond orig­i­na­tors like Raw­son Fi­nance and to the many es­tate agents who work at the lower end of the prop­erty lad­der, where there are al­most no cash buy­ers and where 95 per­cent or 100 per­cent bonds are es­sen­tial.”

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