Banks striving to reduce bond defaults

Posted On Tuesday, 15 October 2013 16:06 Published by
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SA’s big banks are taking longer to deal with home loan defaulters even though they are continuing to reduce their non-performing home loan books from 2009-10 peaks.

Steven Barker Standard BankStandard Bank home loan head Steven Barker said last week that although the bank’s percentage of nonperforming loans fell from 6.2% to 4.9% of total advances in the year to June, the reduction rate has not been as rapid as hoped. He said it could become more difficult to deal with distressed clients who have not yet been worked out of the system.
 
“We are finding it quite challenging to manage the remainder of our nonperforming loan book as most (cases) are legal matters that have gone the sequestration or repossession route and are taking longer to settle than we had hoped.”
 
Mr Barker believes it could take at least another two to three years to get rid of SA’s overhang of distressed properties, given the worrying state of consumers’ financial positions.
 
According to the National Credit Regulator’s latest Consumer Credit Market report, about 75,000 homeowners were in arrears on mortgage repayments (for more than three months) in June. These defaulters’ mortgage debt totalled R41bn, about 5.2% of total home loan advances of R799.41bn. Figures released by the individual banks for their June financial reporting periods confirm a default level of 4%-6%. That is a marked improvement on the 10%plus reported by banks in 2010 but still around double pre-crisis levels.
 
Standard Bank’s research indicates that sales volumes are about 33% down on 2006-07 levels.
 
“This could well be the new normal for the South African housing market, something the industry will have to adjust to,” Mr Barker said.
 
First National Bank (FNB) Home Loans CEO Jan Kleynhans expects the bank’s 21% rate of reduction of nonperforming loans in the 12 months to June to continue for the next year.
 
He concedes that a slowdown is likely thereafter, as the remainder of loans — mostly debt-counselling and insolvency matters — are likely to take longer to work out of the system due to the legal processes involved.
 
Mr Kleynhans said that it would probably take 18-24 months for FNB’s nonperforming loan book to return to normalised levels of about 2%-3%. However, he said demand for residential property was unlikely to improve in the near term, given SA’s fairly low economic growth rate and “persistent and relatively high” household debt levels, which were constraining the ability of consumers to take on new mortgage debt.
 
Property economists are equally bearish about house price growth. Absa senior housing analyst Jacques du Toit and FNB property strategist John Loos said they expected a slowdown in growth in the next 12 months. Absa recorded an 8.5% rise in house prices in September year on year, down from about 11% in the first half of this year.
 
Mr du Toit expected house prices to rise by an average 9% for the year, slowing to 6% next year.
 
Mr Loos expected house prices to achieve an average 6.5% growth this year and 5.7% next year, down from 7.3% last year.
 
Source: FM 
Last modified on Wednesday, 16 October 2013 06:22

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