South African banks grew home loans by 4.1% amid record low interest rates

The aggregate home loan portfolio of South African banks stood at $73.6 billion in 2020, with the growth moderating slightly to 4.1% from 4.9% in 2019. Despite the impact of pandemic, the low level of interest rates has resulted in high demand for home loans, especially from first-time homebuyers. The South African Reserve Bank (SARB) cut its benchmark interest rate steadily to 3.5% from 6.5% at the start of 2020. Meanwhile, the growth was partially led by the pandemic-driven shift towards remote working.

Together, the four largest banks in South Africa– Standard Bank of South Africa, Absa Bank, FirstRand Bank and Nedbank – hold a combined market share of 93% in home loans. With a market share of 35%, Standard Bank of South Africa has remained the bank with the largest home loan portfolio among all South African banks. The bank recorded a 6% growth in its home loans in 2020, compared to a growth of 4.3% in a year earlier. Therefore, it gained a market share of 0.5% in 2020.

FirstRand Bank, which had a home loan portfolio of $15.3 billion, saw its market share in home loans drop from 21.6% in 2019 to 20.8% in 2020. Despite the lows interest rates, FirstRand Bank grew its home loan book by merely 0.2% in 2020, down from 6.4% in a year earlier. This can be largely attributed to its conservative risk appetite.

Absa Bank and Nedbank grew the home loans by 4.3% and 4%, respectively. These two banks’ market share remained stable in 2020. Both Absa Bank and Nedbank have refrained from paying a dividend for 2020 to retain capital for growth opportunities.

The SARB has kept its benchmark interest rate unchanged at 3.5%. Homebuyers continue to take advantage of the low interest rates and the growth of South African banks’ home loans is expected to improve to 4.7% in 2021. In the first four months of 2021, the mortgage loans of Standard Bank were well above what it recorded in the same period in 2020. In March and April 2021, South African banks expanded home loan book by 4.8% and 6% year on year, respectively.