After the Bell: ANC ministers spout more rubbish about banks

Human Settlements Minister Mmamoloko Kubayi was presenting to the public the reasoning behind the proposed amendments to the Home Loan and Mortgage Disclosure Act of 2020, yet another in a long line of bank-bashing by ANC ministers. Some of that is entirely justified, but it doesn’t mean it’s always justified. You have to judge. Right?

Business Day’s headline on its lead story was this: “Kubayi aims to unmask banks’ home loan practices”. This is the headline from TimesLive: “Half of home loan applications declined by banks as whites remain favoured: Kubayi”. From BusinessTech we read: “Home loan crackdown in South Africa”. This from Fin24, republished from Bloomberg: “Crackdown on banks’ home loan rejections: Govt wants bigger fines, amended laws”. And there were reports by SA’s radio stations and the SABC. (Daily Maverick’s more constructive and sober report on the briefing is here. Just saying.) 

These were all big headline articles. The news angle in most was more or less the same: the government is going to tighten the existing Home Loan and Mortgage Disclosure Act, which requires financial institutions to disclose information about their home loan lending activities. The underlying message to readers is that here is a brave government minister taking on the horrible financial institutions and their evil loan practices. Very good. I’m on board!

And clearly, government has a righteous claim, because as the TimesLive report says with disarming forthrightness in its first paragraph: “Human settlements minister Mmamoloko Kubayi has revealed how bank-approved home loans are still skewed in favour of white people.”

And she has proof, which she reads out in the briefing. Data from the Office of Disclosure, a department set up by the act, show that in 2018-2022, there were almost 6 million mortgage and home loan applications received and processed by banks. About 2 million were from historically advantaged individuals, with just over 1 million approvals. Applications from historically disadvantaged individuals during this period amounted to 4 million, with just more than 2.4 million approvals. 

Right. Wait. So the proportion of approvals for black South Africans was actually higher than for other races? How did nobody seem to notice that? But despite announcing statistics which show applications from historically disadvantaged individuals have a higher approval rate than historically advantaged individuals, she did explicitly say that applications from historically disadvantaged individuals have a lower approval rate, without explaining the difference.  

I presume she may have just read it wrong and got the numbers back to front. But then again, as far as I can see, all the publications who published the briefing used the numbers as presented above, and didn’t question them, and the department hasn’t rushed around to correct the publications. 

But even if she did get the numbers the wrong way around, doesn’t the data suggest the approval rates are really pretty much the same, rather than outrageously different? Her own expression of the proportion is that there is a 53% historically advantaged individuals approval, and a 49% for historically disadvantaged individuals — a pretty small 4 percentage point difference (which, by the way, does not tally with the numbers above. Obvs.) That suggests to me not market failure, but broad market success, particularly if you assume lower affordability rates among historically disadvantaged individuals. 

Not only that but the total number of applications and approvals from historically disadvantaged individuals was twice as large as from non-historically disadvantaged individuals. Isn’t that good news? The housing market is visibly becoming progressively more non-racial, as you might expect, although there is still a big difference between aggregate loan application sizes. You could also argue that even a two-to-one differential is not quite the same proportion as population demographics. 

Anyway, this terrible injustice needs to be fixed urgently, and the government needs to intervene because it’s a clear demonstration of market failure, Kubayi said very explicitly. So how are they going to do that? The problem, she said, is that the existing legislation is “voluntary” and the amendments will make it “obligatory”. 

Except the existing legislation is not voluntary; the Act requires very detailed home loan information to be handed over: total number of applications, rand value, and geographic information. There is even a category which is called “such other information as may be prescribed”.  

What the government wants to do is not very explicit, other than increase the fines, but it seems it wants to know the reason banks decline home loan applications. Generally, I think that is pretty obvious; banks only grant loans to people who don’t need them. Juuuuust joking. 

The main issue is affordability and, if the numbers are right, the total proportion of refusals is pretty high. But it’s worth noting that the number of approvals is much lower than provided by professional banking information providers, who suggest the approval rate is around 84.3%  — see here. 

Would have been nice if that detail, available in milliseconds via Google, had been included in the wall-to-wall reporting. But it wasn’t.

But what is the reason for the high rate of refusals? It could be affordability. But you know what? It could also be that national and local governments haven’t produced a reliable cadastral township land ownership system in areas people want to buy. It could also be that sellers can’t get a clean rates record from their council. It could be that the deeds registration office is dysfunctional. Far be it for me to dictate functions to government, but surely the Human Settlements Department might want to look at those issues. 

Far from Kubayi’s insistence that there is a clear market failure, home loans are in fact a fabulously competitive market; it’s long-established, profitable and an absolute pillar of banking around the world. It seems very unlikely to me that the banks are being completely irrational here. Total mortgage advances by banks are currently sitting at R1.4-trillion and, over the past five years, around R1-trillion has been granted in home loans to historically disadvantaged individuals alone. That is not a small number.

So what is going on here exactly? Two things, I suspect. First, blame-shifting. Government is desperately trying to shift responsibility for its failings to the private sector. Sometimes that’s justified; in this case, it’s not, imho. 

Second, you can’t help feeling that when it comes to banks, the ANC’s intense socialism blurs its sense of reality and so actual data just doesn’t penetrate. I also think SA’s cowed banks do too little to counter government’s distortion field. 

The Banking Association South Africa (Basa) did respond to Kubayi’s presentation the following day, making the point that 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 overindebted. 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. 

“Allegations of unfair discrimination by banks remain unfounded and are, frankly, irresponsible. 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,” the association said. All pretty obvs, would be my comment.

But you know what? Nobody reported Basa’s statement. I mean FFS. Why, after all these years of being lied to by government ministers, is the SA media industry not more suspicious, especially when it comes to race-baiting? Honestly, I don’t know. DM