The dangers of government interference in banking

The ANC’s desire to implement its ideas of a command economy seems to be raising its head again… yet this time, it is accompanied by the veneer of justice, which always goes with the race card when it is played.

Human Settlements Minister Mmamoloko Kubayi – whose department, by the way, hasn’t done a great job of providing housing for people – now wants to control how banking institutions lend money.

In accusing banks of racial profiling when granting home loans, the minister wants to penalise banks for failing to disclose their reasons for turning down mortgage applications.

If she intends this new, hardline approach to free up more money for prospective home buyers, she is unaware that financial institutions are already bound by the National Credit Act, which sets out the affordability criteria for responsible lending that banks must adhere to, to ensure that customers do not become over-indebted.

According to the Banking Association South Africa (Basa), 48% of home loan applications are declined due to a lack of affordability, 34% due to an adverse credit record and 13% due to unacceptable security.

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“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.”

Basa says its members do not use race as one of the criteria in assessing home loan viability and, in the absence of evidence to the contrary – which the minister has not provided – one must accept their word.

Banks are businesses – and they manage the money of ordinary South Africans, to whom they also have a fiduciary responsibility to ensure no reckless lending decisions are made which could result in losses.

It’s the beginning of a slippery slope when a government wants to dictate to businesses how they should be run.