Standard Bank Group says new home loans granted “reached record levels” in 2020, “fuelled by low interest rates”. In South Africa, the bank disbursed R56.5 billion in mortgage loans in the year, a 13% increase on the year before.
Given that new disbursements saw a one-third contraction in the first half (to R15 billion) due to the hard lockdown, the bank disbursed an astonishing R40 billion in new home loans in the last six months of last year. This is not far off the total of R48 billion in new disbursements from 2019.
Because these loans are long-term in nature, this is a bold call on the longer-term health and strength of the property market and the broader economy.
The average loan-to-value of this new business has exceeded the 90% mark for the first time in over five years and is at 91.3%.
Standard Bank received 258 000 home loan applications in the year, which is 17% higher than the number from 2019. Its market share is now 34.5%, a multi-year high, and over 62% of new business was referred to the bank by mortgage originators.
The bank’s total home loan book in South Africa is R378.1 billion (out of a total group book of R399 billion).
Of the group figure, it has booked an impairment charge of R4.132 billion in the South African home loan portfolio, and R4.372 billion for the group. This represents a credit loss ratio of 1.14% for mortgages.
The group cautions that the “already protracted legal environment remains constrained and backlogged following the lockdown regulations”.
“In addition, increased probability of defaults and the acceleration of permanently distressed payment holiday extensions into Stage 3 further contributed to higher impairments. This has been partially offset by continued asset realisation.”
The home loan business reported total income of R8.962 billion for the year, but with impairments nearly five times higher than in 2019, this translated to a 57% decline in headline earnings for mortgages to R1.7 billion.
Earnings in the home loan product group were the most insulated.
|Personal and business banking||2020 headline earnings||Change|
|Transactional products||R1.314 billion||-70%|
|Mortgage lending||R1.676 billion||-57%|
|Card products||R400 million||-78%|
|Vehicle and asset finance||(R917 million)|
|Lending products||R743 million||-70%|
The group’s impairment charge for its vehicle and asset finance book is R2.618 billion for the year, equating to a credit loss ratio of 2.75%.
It says the “increased impairment charge was primarily due to lower cash collections and increased forward rolls following job losses and income reductions consequential to the prolonged lockdown”.
“Higher expected losses applied further contributed to the higher charge.”
New disbursements in vehicle and asset finance were down 13% to R34.7 billion. The motor book (versus non-motor) saw disbursements fall by 15%. The total book grew by 5% to R99 billion.
|Credit loss ratio||Dec 2019||June 2020||Dec 2020||Impairment charge|
|Vehicle and asset finance||1.06%||3.01%||2.75%||R2.618bn|
|Other loans and advances||1.56%||3.26%||2.84%||R6.709bn|
|– Personal unsecured lending||3.91%||7.88%||6.18%||R4.376bn|
|– Business lending and other||0.66%||1.43%||1.41%||R2.333bn|
|Personal and business banking||0.89%||2.31%||2.13%||R15.930bn|
|Corporate and investment banking||0.32%||0.68%||0.59%||R3.798bn|
Standard Bank says by December 31, Covid-19 relief provided by its personal and business banking unit in South Africa (PBB SA) “had reduced to R19 billion, representing 3% of the PBB SA portfolio”.
“Mortgages and Card represented 69% and 23% of the remaining active client relief portfolio respectively. In keeping with the group’s promise to deepen client relationships and support them through the crisis, payment holiday extensions were provided to select clients.”
As at December, R99 billion of relief had “expired”, meaning that these loans are being serviced.
It says “behaviour [was] largely in line with expectations” as at June 2020, with more than 90% of relief clients paying full or partial instalments. The bad debt provision on this book is lower than its overall ‘base’ portfolio.
The group’s credit loss ratio has reduced to 1.51% from 1.69% in June.
Group headline earnings were down 43% at R15.9 billion and return on equity was 8.9%. It says “activity recovered” in the second half of the year. The group declared a final dividend of 240c per share, “representing a payout ratio of 24% on FY20 headline earnings”.
From January, the group has reorganised from a “traditional business line-led structure to a client-led model with three core client segments”:
- Consumer & High Net Worth;
- Business & Commercial; and
- Wholesale clients.
It says: “South Africa’s recovery is expected to be multi-year and, like elsewhere, will be closely linked to the effectiveness of its vaccine rollout programme. … Governance and structural reform are expected to continue, albeit at a slow pace. Job creation and inclusive growth are key to driving a more favourable long-term outlook.”
It cautions that: “Fiscal consolidation and energy supply constraints remain key risks.”