Banks ready to boost lending

Johannesburg - In a significant about-turn from only a year ago certain retail banks are now urging clients to borrow more, especially on mortgage bonds.

Activities in the bond market indicate that the banks are positioning themselves for further advances, despite the huge bad debts with which most are saddled.

In a letter to home-loan clients Luthando Vutula, managing executive of Absa Home Loans, says that clients should now take the opportunity of applying for a further advance on Absa home loans.

A requirement is that the value of the house has increased, being worth more now than the value of the original loan. If a R800 000 mortgage was granted and the balance is currently R500 000, a further 95% advance on the market value of the house is available. In such a case the supposition is that the current market value of the house is R1m.

The amount can be paid out in cash, but involves registration of a second mortgage.

Banks' greater willingness to approve loans comes in the wake of the tightening of lending criteria last year, which resulted in the non-approval of 100% home loans, and obliged clients to put down deposits of between 10% and 20%.

The bond market has also recently seen intense activity on the part of banks.

Morgan Stanley Rand Merchant Bank says in a research note that banks issued bonds worth R17.7bn in the third quarter. This is by far the greatest issue this year and almost three times that of the second quarter.

Wikus Furstenberg, portfolio manager at Futuregrowth Asset Management, notes that banks are aggressively active in the bond market, indicating their desire to strengthen their balance sheets in anticipation of a new lending cycle.

- Sake24.com

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