Diminished bank profits could lead to easing up on finance criteria
The stage could soon be reached, says Rob Lawrence, National Manager of Rawson Finance, at which share analysts and financial advisors start querying at what level bank dividends will be paid in the coming year.
Every SA bank, he said, 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 write offs and low lending patterns will inevitably impact on 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 the rejection rate on bond applications for homes is still at 50%.
The current crop of write offs 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.
By now, he said, the banks rejection rate on bonds could, in my view, be 20% lower without undue risk to them. Home finance could and should now be making a greater contribution to banks profits, which will inevitably, it is now accepted, 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, said Lawrence.
For example, the score card places a high value on stability and this is measured largely by the length of time that 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 todays business scene, work is increasingly outsourced. Many of our most competent workers dislike the corporate life and move from job to job in well paid consultancies but getting them a bond is well nigh impossible and there are other areas the banks should be considering to make it easier for them to give bonds.
As a corollary to this, it is also a fact, said Lawrence, that 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% secure There have been, and will be more cuts here too, he said.
Lawrence said not for one minute is he advocating that the banks indulge in any reckless lending, but the bottom line is that they need to lend to make profit. The changes I am proposing would assist not only them but also current home buyers.
When the financial analysts do become critical of bank financial performances, said Lawrence, this might well lead to an easing up of the post-NCA position adopted by the banks.
This will be a relief not only to bond originators like Rawson Finance but also 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 or 100% bonds are essential.
Article from: www.rawsonfinance.co.za