Attack on South African banks

South African banks have recently come under fire from government officials regarding their approval rates for home loans from previously disadvantaged people. 

This forms part of a pattern of ministerial attacks on South Africa’s largest financial institutions, which has the potential to damage the relationship between businesses and the government. 

The partnership between the state and the private sector has yielded tremendous benefits for South Africa, including work to end load-shedding and improve the performance of the country’s logistics network. 

Business Leadership South Africa (BLSA) CEO Busi Mavuso praised this partnership in her most recent newsletter. 

However, she also sharply criticised government officials who continue to slate businesses without evidence or facts to back it up.

Human Settlements Minister Mmamoloko Kubayi slated South Africa’s banks for their home loan approval rates and said the government plans to force them to account. 

In particular, the government’s planned changes to the Home Loan and Mortgage Disclosure Act would compel banks to disclose more information about their lending practices. 

The proposed amendments would enable the state to investigate consumer complaints about home loans and raise penalties for lenders who do not comply.

Kubayi said the rejection rate for previously disadvantaged groups is “concerning” despite banks citing poor credit records and a lack of affordability as key drivers.

“We know that the banks don’t think that it is necessary, but we do believe that we have a case to make in terms of forcing them to disclose when they have declined an application and the reasons they have declined,” she said.

Mavuso said these comments took her aback and that the minister cited statistics that did not support her point.

Kubayi said that from 2018 through 2022, lenders received about 6 million applications for loans.

Two million were from previously advantaged groups, of which 1 million were approved, while 4 million previously disadvantaged people applied for home loans and 2.4 million were granted. 

“This is another misguided attack on the banks from a senior politician after Minister in the Presidency Khumbudzo Ntshavheni accused banks last year of being “traitors” over allegations of currency manipulation,” Mavuso said.  

“This pattern of attacks against banks by ministers, unsupported by evidence, is damaging to the government’s relationship with business.”

Mavuso said these attacks were not backed up by evidence and were inflammatory, designed to spark public outcry. 

“Government must realise it has a responsibility to support the health of the business environment which, especially in the case of banks, includes a responsibility not to whip up public sentiment, particularly when there are no facts to support it.”  

“So while there is much in government that is contributing to a productive partnership, there are still some elements that detract from it.”

Banks respond

The Banking Association of South Africa (BASA) responded to Kubayi’s allegations in a media statement late last week. 

BASA aims to advance the interests of the banking sector in South Africa and represents all of the country’s largest banks and some international counterparts, such as JP Morgan, Goldman Sachs, and Barclays. 

In its statement, the association flatly dismissed the minister’s claims that race is one of its many criteria for extending home loans to South Africans. 

“South Africa’s banks hold in trust the savings and salaries of South African workers, professionals and businesses. This makes up approximately 75% of the funding of banks, and they have a fiduciary responsibility to protect these depositors’ funds,” it explained. 

Thus, they are responsible for ensuring they do not lend recklessly to protect depositors’ savings. 

The National Credit Act sets out the affordability criteria for responsible lending to which banks must adhere and approval for loans is granted according to this legislation. 

According to BASA members, 48% of home loans are declined because of a lack of affordability, 34% because of an adverse credit record, and 13% because of unacceptable security. 

A lack of affordability and an adverse credit record is more often than not a result of the weak economy, which has created persistent unemployment and economic hardship, the association said. 

BASA said it acknowledges the racial inequalities in wealth and ownership. “However, it remains the responsibility of the government to create an enabling environment so that companies can grow and create jobs.” 

This would allow more South Africans to meet the affordability requirements set out in law. 

Banks also need to be certain there are appropriate regulations in place. BASA said it continues to seek clarity on the steps taken thus far to amend current legislation to reflect the additional information and reporting requirements.

Engagements with the Office of Disclosure and the department are ongoing.

It said the department can assist with many of the barriers to affordable housing in South Africa, including making available government-owned land for housing developments, especially outside the large metros.

The department can also ensure a quicker turnaround of deeds registration, which will reduce consumers’ costs, and speedier service delivery.