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- Standard Bank says customers with home loans of less than R1.5 million have felt the most pressure from a rapid rise in interest rates.
- Many are first-time home buyers with incomes between R15 000 and R40 000 a month.
- Home loans that the bank wrote in 2020 - when many of its peers switched off their lending taps - had been performing the best.
- For more financial news, go to the News24 Business front page.
Standard Bank says customers with home loans of under R1.5 million are battling the most with a rapid rise in interest rates that pushed up their bond repayments by more than a third.
But Africa's largest lender, which warned on Tuesday that its impairment charges rose by almost 50% in the first five months of 2023, says its decision not to turn off the lending taps during the height of Covid-19 has also paid off, with market share gains among the more affluent.
During a call with analysts on Tuesday evening, the bank said cases referred for debt review have climbed more than a fifth as a rise in interest rates saw more clients struggling to pay their instalments.
Typically, households spend a maximum of around 28% to 30% of their income servicing their home loans.
However, given that the South African Reserve Bank has hiked rates by 475 basis points since it began its tightening cycle in November 2021, this percentage has increased for many households.
A customer who received a R1 million home loan at a prime lending rate of 7% with no deposit in 2020 or 2021 now pays 40%, or R3 000 more.
CFO of Standard Bank's Consumer and High Net Worth Clients franchise, Lihle Ngema, said on Tuesday "pockets" of customers with home loans of under R1.5 million were under the most pressure.
Ngema said interestingly, though, the home loans that the bank wrote in 2020 - when many of its peers switched off their lending taps - had been performing the best.
Losses and gains
Standard Bank and Absa grew their secured lending books drastically in 2020, taking advantage of the record-low interest rates that brought a new calibre of first-time buyers to the property market. Ngema said that as other banks tightened their lending appetite, Standard Bank used that opportunity to take low-risk clients from them.
"Those [2020] home loans have actually been our best vintages," she said. "What's quite important is that in the last couple of years is that we've been very targeted in terms of the clients. It has been largely within the affluent segment.
"The average income in terms of our lending has been to people earning over R60 000 on a monthly basis," she added.
But Standard Bank also grew its market share among first-time buyers. Standard Bank's CEO for the Consumer & High Net Worth Clients division, Funeka Montjane, previously told News24 that around 60% of home loans the bank wrote before the recent hiking cycle went to first-time buyers. This was mostly young black women who bought homes worth about R1 million.
But the bank assessed buyers' affordability by assuming a higher interest rate than the prevailing one.
Ngema said that of those customers, people with salaries between R15 000 and R40 000 a month are under pressure now.
"But more broadly, what we are also seeing is an increase in the flow to debt review, which you would expect in this sort of market. Debt review across the portfolio is up 22% from this time last year," she noted.
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But Standard Bank Group Financial Director Arno Daehnke said the bank has enough coverage if more customers struggle to service their home loans. This is the case even if there is another 25 basis point hike in 2023, which the group expects.
"Of course, if we have a worst-case scenario playing out, with many more interest rate hikes, that might put additional pressure on the portfolio. But on the base case scenario, we remain confident that we'll be within the [targeted credit loss ratio] range," he said.
The base case scenario Standard Bank has modelled includes only one more interest rate hike of 25 basis points in July. The bank also said that if more customers fall on hard times, it has programmes in place to help them keep their homes.
