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Johannesburg - South Africa should look to the lessons of the US housing
correction to avoid poor lending practices locally from knocking economic
growth and stability, according to market analysts.
"While South Africa has been applauded for having one of the most
sound and transparent banking systems around the world, it can be criticised
for the less prudent lending practices banks have adopted lately,"
analysts at Econometrix Treasury Management (ETM) said on Tuesday.
"South Africa will not want to introduce a potential source of
macroeconomic volatility after it has made so much progress in enhancing
the general stability of the domestic economy," they pointed out.
"Although the correction in the US property sector is a lot more
severe than the muted slowdown in growth experienced locally, the US
still provides a great example of how reckless lending practices and
a substantial subprime mortgage market could impact on growth and economic
stability," they added.
Subprime mortgages are usually granted to those with bad credit history,
thus demanding a higher interest rate to compensate for the added risk
premium.
According to Absa, the country's biggest mortgage lender, house price
growth is expected to level off later this year to 10 percent year on
year - which is still down significantly from 30 percent experienced
in 2004.
"Clearly the banks are feeling a little uncomfortable with the
amount of credit that they have extended, as we see increasing amounts
of debt being securitised and sold off," ETM pointed out.
ETM further warned that slower house growth could have a "considerable
implication" on the growth of the South African economy, as it
would mean a reduction in fixed investment and employment in the construction
sector.
Drawing on the property correction in the US, ETM said: "In the
same way the property boom in the US boosted the wealth effect and overall
consumption demand, SA's growth was equally well supported. A slump
or even reduced growth in the housing market will have considerable
implication on the outlook for future growth in both economies."
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Newsletter:
3 February 2012 to 10 February 2012 - Krugersdorp, Gauteng, South Africa
