Johannesburg - Big commercial banks’ middle-income clients are increasingly struggling to get advances or bigger home loans, but loans for clients in the lower-income market are on the increase.
Recent interim results from
Absa Group [JSE:ASA],
Nedbank Group [JSE:NED] and
Standard Bank Group [JSE:SBK] and full-year numbers from
FirstRand [JSE:FSR] show that the tempo of new loans granted has largely remained flat.
At the same time, average earnings growth has risen.
This is partly the result of the sharp decline in bad debt write-offs, after a sharp rise in bad debts over the previous two years.
However, there are signs of an improvement in loans extended at the lower end of the market. This is the result of a deliberate strategy on the part of some of the major banks to concentrate on this market segment, after having maintained for years that no money could be made in this market.
But the spectacular rise of
Capitec Bank Holdings [JSE:CPI], which concentrates on the lower-income market, as wellas the success of
African Bank Investments [JSE:ABL] in the microlending space, prove the opposite.
Sanlam Asset Management bank analyst Patrice Rassou said that between 2003 and 2008 banks were lending to middle-class clients on a grand scale. Motor cars were being replaced every four years and homeloans to the full value of properties were being granted.
This policy left the banks with a large bad debt problem, but they would probably again look to the middle market if household debt levels came down, said Rassou.
Middle-class households don’t currently have the capacity to incur more debt.
Some banks have relaxed their lending criteria at the bottom end of the market.
In a research note, Nedbank Capital said that advances were currently growing for FirstRand and Nedbank. Absa and Standard Bank were faring less well, partly because they had large homeloan books.
The value of homeowners’ equity in their homes compared with the value of the loans has declined, so that little room is left for further advances to boost banks' interest income.
Absa in particular has become more conservative with its loans.
Dr
Michael Jordaan, chief executive of First National Bank (FNB), said FNB’s client base had grown 4% in the year to June.
The banking group wanted to expand its current client base with a greater presence in the lower-income market.
He stressed that caution would be adopted to avoid a bad debt problem, as the bank had learnt its lesson.
FNB’s bad debts had risen sharply in the 2009 financial year.
The bank is seeking new market segments for growth.
One is the market for affordable housing, where FNB has already targeted financing 100 000 new houses by 2012.
At the same time at FNB the emphasis is on cost savings, implementing smaller, paperless branches, cheaper communication by cellphone and the marketing of additional products.
This is precisely the winning formula followed by Capitec.
- Sake24.com
For business news in Afrikaans, go to www.sake24.com.