Banking Association hits back at home loan claims – BusinessTech
The Banking Association of South Africa (BASA) has refuted recent claims by Human Settlements Minister Mmamoloko Kubayi about a high prevalence of discriminatory practices relating to the application process of home loans.
On 26 August, Kubayi revealed that government is planning to change the Home Loan and Mortgage Disclosure Act to enable the state to investigate consumer complaints about home loans and raise penalties for lenders over non-compliance.
Kubayi said that rejection rate for previously disadvantaged groups is “concerning,” despite banks citing poor credit records and a lack of affordability as a key driver.
According to her Department, from 2018 through 2022 lenders received about 6 million applications for loans.
Two million of those 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.
“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,” said the minister.
However the BASA has hit back at this, saying that every bank has its own business and risk criteria for extending home loans and other forms of credit and “race is certainly not one of them.”
“Allegations of unfair discrimination by banks remain unfounded and are frankly irresponsible,” said the association.
“BASA and its members are opposed to unfair discrimination of any kind and to date, no BASA member bank has been found guilty in a court of law of systemic or institutionalised racism.”
“It is the business of banks to lend using financial products and services, like home loans. As such, they are incentivised to lend as much as possible – banks do not want to turn away customers,” it added.
According to the association’s 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 that has created persistent unemployment and economic hardship,” said BASA.
BASA said that it “has long acknowledged that the racial inequalities in wealth and ownership in South Africa have their roots in apartheid and has partnered with government to bolster inclusive economic growth.”
However, “it remains primarily the responsibility of government to create an enabling operating environment, so that companies can grow and create jobs, allowing South Africans to meet the affordability requirements set out in law,” they added.
The association said that while it supports the intention of the Act – the promotion of fair lending practices – banks also have a legal obligation to protect the savings and salaries of South Africa’s workers, professionals, and businesses.
It also said that current regulation already achieves much of what the Department is looking for.
“The National Credit Act, for example, sets out the affordability criteria for responsible lending, to which banks must adhere, to ensure that customers do not become over-indebted,” and requires disclosure to the Department of Trade, Industry and Competition.
However, the Department of Human Settlements (DHS) said that the fact that commercial banks already disclosing information does not affect their obligations for further disclosure.
BASA suggested that the DHS should rather aid in overcoming affordable housing challenges in South Africa by providing government land for development, streamlining deeds registration to lower consumer costs, and speeding up service delivery.
Furthermore, they said that development finance institutions play a crucial role in supporting individuals who are ineligible for traditional loans, which should another focus of the department.
BASA notes that mechanisms like the Financial Sector Conduct Authority and the National Financial Ombud Scheme are already in place to address any complaints against banks, ensuring fair treatment of customers.
“If there are credible allegations of discrimination by banks, they should be fully investigated and the law applied accordingly,” concluded BASA.
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