One of South Africa’s biggest banks on home lending trends

Financial services firm Absa, which commands nearly a quarter of South Africa’s mortgage market share, says that demand in the local housing market was strong across all segments in 2021, due mainly to the low-interest-rate environment and positive sentiment towards homeownership.

The lender noted in its financial results report for the year ended December that total applications grew by 18% against 2020 and 48% against 2019. It said that the strategic changes made by the business enabled home loans to grow faster than the market.

The overall confidence in the South African property market improved, Absa said, noting that its average homeowner sentiment index increased by 4 percentage points to 80% in 2021 (2020: 76%); and the national house price inflation index increased by 5.1% in 2021 (2020: 3.7%).

Home Loans earnings increased to R2.53 billion from R534 million, given significantly lower credit impairments and 15% higher pre-provision profits.

During the reporting period, Absa said it improved the customer journey by advancing digital self-service capabilities. The bank grew customer numbers to 9.6 million over the period, including 2.7 million digitally active clients.

Absa said that its financial performance was driven by:

  • New mortgages registered increased by 49% against 2020, whilst the market increased by 41%;
  • Market share for new mortgages registered increasing to 23.2% (2020: 21.8%);
  • Average loan-to-value on new mortgages registered increased to 89.1% (2020: 88.4%); and
  • Mortgages originated by mortgage originators as a percentage of business increased to 64.8% (2020: 57.5%).

South African Reserve Bank’s Monetary Policy Committee (MPC) has hiked interest rates in recent sessions, with several more anticipated by economists before the end of the year.

 


Vehicle and Asset Finance (VAF)

Absa said that the domestic vehicle market experienced a steady recovery in 2021, however, it still remains below pre-Covid-19 levels.

New vehicle sales increased by 22% for the period ending December 2021 compared to a 29% decline in 2020, however, this remains 14% down on the same period in 2019.

It noted that the combined new and used financed vehicle market grew by 23% in 2021 after a 28% decline in 2020 although this remains 11% down on the comparable period in 2019.

Vehicle and asset finance grew 10%, on 24% higher production, increasing market share to over 23%.

Absa said that VAF continued to focus on achieving its strategic objectives “through the implementation of additional customer self-service features on digital platforms”.

Gross loans and advances to customers increased by 10% to R104.1 billion, driven by strong production levels that supported solid instalment sales growth.

Impairments reduced to R1 426 million (2020: R3 062 million) with the credit loss ratio improving to 1.45% (2020: 3.45%), driven by an improvement in both the underlying collections performance and the economic outlook relative to 2020 as well as the one-off impairment adjustment taken in 2020.

Vehicle and Asset Finance earnings swung to a profit of R605 million, from a loss of R927 million, due to a 18% pre-provision profit growth and 53% lower credit impairment.

Looking ahead, Absa said that VAF will focus on: the implementation of additional acquisition and payment features on digital platforms, among other things.


Read: Absa reports strong profit growth, declares dividend

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One of South Africa’s biggest banks on home lending trends