Home Real Estate STOCK TAKE | A tale of two smelters, and did banks get it wrong on home loans?

STOCK TAKE | A tale of two smelters, and did banks get it wrong on home loans?

by Ozva Admin


A tale of two foundries

The worst of times, at the worst possible time

Most companies using Transnet’s Richards Bay port have few kind words to say about the facility, which is frequently described by exasperated customers as having descended into chaos.

And it is not the recent wage strike that has led to chaos in this port; rather, Richards Bay has been steadily gaining a bad reputation, where conveyor belt fires from a year ago continue to affect operations and where ships face excessive delays incurring high costs of demurrage. For those with alternatives, it has become a port to be avoided at all costs.

The likes of South32, a major diversified miner and one of the 20 largest companies listed on the JSE, unfortunately relies on the port to move product from its nearby Hillside aluminum smelter. Feeling the effects of the operational issues firsthand, the CEO of South32 told News24 earlier this year that the group had even stepped in to repair a shiploader in port as part of a proactive approach to navigating the bass. logistical problems facing South Africa.

It hasn’t been enough to stop challenges at that facility, with the company on Monday reporting an 18% decline in export sales for the three months ending in September, a drop of about 36,000 tons, as congestion of the port affected the time of departure. shipments.

Some 400 km away, at the group’s Mozal smelter in Mozambique, sales remained stable. The business there moves aluminum through the Matola port.

Both smelters are partially or fully dependent on Eskom for electricity, but have managed to maintain or increase production despite the impact of load shedding. But in the end, Transnet proved to be an even bigger obstacle to their operations.

It takes a special kind of dysfunction to make Eskom look good, and finally there is a growing realization that Transnet may well be an existential threat to the economy.

Did the banks miscalculate mortgage loans?

So far so good

When interest rates started to rise last November, most people didn’t panic, not even the banks that underwrote record home loans for first-time buyers when interest rates were at 50-year lows.

But then the South African Reserve Bank started to push through more significant increases, bringing interest rates back to a level last seen in January 2020.

This boosted the monthly bonus payment on a R1 million home loan with no down payment from R7,753 (before the rate hike) to R485, before administrative and other fees.

The tide is going out now, and the market will start to see naked swimmers, warned those who didn’t jump into a lending spree when interest rates were rock-bottom. Among them, FirstRand, which owns FNB and WesBank, has lagged behind its peers over the past two years in lending.

FirstRand Group CEO Allan Pullinger recently warned analysts who noted other banks ate the group’s lunch on new loans, “don’t judge the success of that too soon“.

Everyone is waiting to see if the banks will drown in the loans they generously gave out because low interest rates made property more affordable for many consumers.

But one of the banks that was most active in the home lending space during the period of low interest rates has so far been buoyed by first-time homebuyer repayment rates.

Funeka Montjane, Standard Bank’s CEO for the Consumer & High Net Worth Clients division, says his book is much healthier than it was after the global financial crisis, when about 14% of the bank’s mortgage loan book was in default.

She says that this time, about 60% of the home loans the bank issued were to first-time buyers, mostly young black women who bought R1 million homes on average.

Having learned lessons from the financial crisis, the bank assessed buyers’ affordability by assuming a higher than prevailing interest rate. But he also assumed that his income would start to grow again after two years. Interest rates have risen faster than Standard Bank anticipated, but Montjane is still pleasantly surprised at how these first-time buyers have kept their bond payments up to date.

It could be because many have seen their income rise as Standard Bank predicted. According to the latest Transunion Consumer Pulse Study, 37% of consumers with active credit surveyed in the third quarter said their income increased, an increase of 11 percentage points since the beginning of 2022.

Additionally, 74% of consumers expected their income to increase in the coming year. Thanks to this positive income outlook, 64% expected to pay all of their current bills and loans in full.

As Montjane also pointed out, they prefer to cut other expenses or even resort to payments such as retail credit installments than risk losing their homes. recent Experian data showed.

In the TransUnion study, 56% of consumers expected to make more discretionary spending cuts in the next three months.

Standard Bank is also ready to help those who may find upcoming interest rate hikes unmanageable. Montjane said that the bank has options. It will maintain the installments at the rate of the value in rand that they can pay and increase them when the person can pay more, or lengthen the term of payment of the bonus. For those with prospects for higher incomes in the future, the bank has created a team to help them downsize to homes they can afford.

With another hike expected in November, and the first cut expected only in 2024, the coming year will be critical in testing these strategies and determining whether banks increased their loan portfolios at the wrong time.

quote of the day

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gwede mantashe

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€250 million (R4.55 billion)

The estimated impact on Adidas’ earnings of cutting ties with American rapper Ye, formerly known as Kanye West, according to Bloomberg. This equates to about a sixth of last year’s net income from continuing operations, as the German sports company ended production of Yeezy-branded products following a series of controversial statements.

News24 encourages freedom of speech and the expression of diverse points of view. The views expressed in this column do not necessarily represent the views of News24.

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