Granting home finance could help banks
While ‘score card’ system of vetting bond applicants has merits it must look at new economy
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.”