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

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A tale of two smelters

The worst of times, at the worst possible time

Most businesses making use of Transnet's Port of Richards Bay have few kind words to say about the facility, which is frequently described by exasperated customers as having descended into chaos. 

And it's not the recent wage strike that has led to the shambles at this port; rather, Richards Bay has steadily gained a bad reputation - one where conveyor belt fires from a year ago continue to impact operations and where ships face inordinate delays incurring hefty demurrage costs. For those who have alternatives, it's become a port which is to be avoided at all costs.

The likes of South32 - a major diversified miner and among the 20 largest companies listed on the JSE - unfortunately depends on the port to move product from its nearby Hillside Aluminium Smelter. Feeling the effects of the operational issues firsthand, South32's CEO told News24 earlier this year that the group had even stepped in to fix a ship loader at the port as part of a proactive approach to navigate serious logistics issues faced in South Africa.

It hasn’t been enough to arrest the challenges at that facility, and the company on Monday reported an 18% decline in export sales for the three months ended in September - a drop of about 36 000 tonnes – as port congestion impacted the timing of shipments. 

Some 400km away, at the group's Mozal smelter in Mozambique, sales were flat. The business there moves aluminium through the port of Matola.

Both smelters are either partly or wholly dependent on Eskom for electricity, yet they have managed to maintain or increase production despite the impact of load shedding. But in the end, Transnet proved an even bigger obstacle to its operations. 

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

Did banks miscalculate on home loans?

So far, so good

When interest rates started rising last November, most people didn't panic, not even the banks that wrote record first-time buyer home loans when interest rates were at 50-year lows.

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

This pushed the monthly bond repayment on an R1 million home loan with no upfront deposit from R7 753 (before the rate-hike blitz) to R9 485, before admin and other fees.

The tide is going out now, and the market will start seeing the naked swimmers, warned those who didn't go on a lending spree when interest rates were super low. Among them, FirstRand, which owns FNB and WesBank, lagged some of its peers in the past two years in granting credit.

FirstRand Group CEO, Allan Pullinger, recently cautioned analysts who pointed out that other banks ate the group's lunch in new loans, "not to judge the success of that too soon".

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

But one of the banks that was most active in the home loans space during the low-interest rates period has so far been encouraged by first-time homebuyers' repayment rates.

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

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

Having taken lessons from the financial crisis, the bank assessed buyers' affordability by assuming a higher interest rate than the prevailing one. But it also assumed that their incomes would start growing again after two years. The interest rates have risen faster than Standard Bank anticipated, but Montjane is still pleasantly surprised by how these first-time buyers have kept their bond instalments up to date.

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

Furthermore, 74% of consumers expected their incomes to increase in the next year. Thanks to this positive income picture, 64% expected to pay all their current bills and loans in full.

As Montjane also pointed out, they'd rather cut other expenses or even fall back on payments like retail credit instalments than risk losing their homes, recent Experian data showed.

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

Standard Bank is also prepared to help those who might find the next interest rate hikes unmanageable. Montjane said the bank has options. It will either keep the instalments at the rate of the rand value they can afford and increase them when the person can afford more - or lengthen the bond repayment term. For those with prospects of earning a higher income in future, the bank has put in place a team to help them downsize to homes they can afford.

With another hike expected in November, and the first cut only forecast by 2024, the next year will be critical to test these strategies – and determine whether banks grew their loan books at the wrong time.

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The estimated hit to earnings for Adidas as it cuts ties with US rapper, Ye, formerly known as Kanye West, according to Bloomberg. This is equivalent to about a sixth of last year's net income from continuing operations, with the German sports firm ending production of Yeezy-branded products in the wake of a number of controversial statements.

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

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