PIC gets green light to buy SA Home Loans

The Competition Commission has approved the Government Employees Pension Fund’s (GEPF) acquisition of SA Home Loans – a deal that could disrupt South Africa’s highly concentrated home loan market.

The commission has recommended that the Competition Tribunal approve the proposed transaction whereby the GEPF intends to acquire SA Home Loans without conditions.

The primary acquiring firm in this proposed deal is the GEPF, which is represented by the Public Investment Corporation (PIC).

The PIC is the largest investor on the JSE and has over R2 trillion in assets under management. It acts as an asset management and investment company for various entities, including GEPF.

The PIC is controlled by the South African government and acts as an asset management and investment company for various government entities, including the GEPF.

The GEPF manages and administers pensions and other benefits for South Africa’s government employees.

SA Home Loans is a mortgage finance company and mortgage insurance provider in South Africa.

The GEPF currently has a substantial 25% stake in SA Home Loans, but the largest portion of the company is owned by Standard Bank, which has a 50% stake.

The remaining 25% is owned by the B. Hlogo Consortium.

South Africa’s home loan market is currently dominated by the country’s ‘Big Four’ banks – Standard Bank, FirstRand, Nedbank, and Absa – which finance around 90% of all mortgages. 

This has led many industry players to attempt to disrupt the space by launching their own products, but it is a hard market to break into.

For example, Discovery Bank recently launched its new home loan product, promising to disrupt South Africa’s R1.4 trillion mortgage market with dynamic interest rates that will change depending on how clients manage their money. 

The bank first announced its plans to enter the home loans market late last year, with CEO Hylton Kallner saying the sector was ripe for disruption, with around 60% of mortgages being mispriced. 

In an interview with Daily Investor, Kallner said the bank has very conservative targets, in line with its plan to maintain a high-quality, low-risk client base. 

“Given the growth of the bank and our deposit base, we have got fairly good runway with this product,” Kallner said. 

The bank has identified around 20% of Discovery’s clients who have existing home loans with other financial services providers whose mortgages are mispriced. This presents a huge opportunity for the bank. 

These clients are the low-hanging fruit the bank hopes to win over quickly before taking on the established players and competing for new homeowners. 

However, ironically, Discovery Bank’s home loan product is administered by a team from SA Home Loans, which is 50% owned by the largest home loans market incumbent Standard Bank. 

However, Kallner said the offering is still built as a Discovery-first product, with the company leveraging SA Home Loans’ physical footprint and capacity to service the bank’s clients.

SA Home Loans’ prevalence in the home loans market makes it an attractive target for the PIC.

In 2018, the PIC released its investment rationale for SA Home Loans, in which it explained that the investment “facilitates the transformation of the company and supports access to mortgage funding and affordable housing”.

It said SA Home Loans is the fifth largest home loan provider in South Africa and the largest non-bank provider, offering a range of services related to home loans.

It remains to be seen how the GEPF’s acquisition of SA Home Loans will affect the industry if it is approved by the Tribunal, but the Competition Commission believes it is “unlikely to substantially lessen or prevent competition in any market”.

“The proposed transaction does not raise public interest concerns,” the Commission said.