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14 May 2014

Home Loan Defaults Worry Banks

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According to the National Credit Regulator’s latest Consumer Credit Market report, about 75,000 property owners were in arrears on home loan repayments (for more than three months) in June.

SA’s big banks are taking longer to deal with home loan defaulters even though they are continuing to reduce their nonperforming home loan books from 2009-10 peaks, say industry players.

Standard 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.

“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.

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 recovery of nonperforming home loans to slowdown next year, 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 home 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 home loan debt.

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