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Reckless lending court decision

The recent court case in which ABSA Bank was convicted of “reckless lending” in terms of the National Credit Act will reinforce the tendency of all SA banks towards being ultra-cautious in the granting of bonds and this is “regrettable”, says Tony Clarke, MD of Rawson Properties, because they had just begun to show signs of easing up on their loan criteria.

In the ABSA case a Port Elizabeth pensioner was granted a bond of R350 000 although his monthly income was only R3 700.

“ABSA was told that they had not fully assessed the pensioner’s financial position, but they are lodging an appeal based on the premise that the National Credit Act allows for contribution to the bond payments from a committed third party and in this case an arrangement was in place to do this.”

The case, said Clarke, could set a precedent and, as the judgement resulted in the cancellation of the entire contract, without the pensioner apparently having to refund any money loaned to date, the banks could now again become more cautious about bond grants than previously.

Rob Lawrence, National Executive of the Rawson bond origination subsidiary, Rawson Finance, has said that the success rate on bond applications is still below 60% and this is too low to meet the country’s needs. The rejections, he said, occur despite applications being carefully prepared. The success rate on 100% bonds is still only around 10% which means that in the affordable market home ownership is not taking place.