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Pressure on margins

24 June 2004

"Margins of about 3,5% earned by SA banks on residential mortgage bonds are high, compared with 1,5%-2% in Australia and 0,5%-0,7% in the UK," says MortgageSA MD Saul Geffen.

According to an article in the Financial Mail, those figures exclude the cost of bad debt, which has been higher in SA than in developed markets. However, First National Bank (FNB) home loans chairman Michael Jordaan says bad debts are falling fast and lenders are now experiencing lows of about 0,5% on their books.

So banks are coining it, despite the low interest rates and increased competition. Jordaan says margins in SA are likely to come down: a margin of 1,8% after bad debts is probably the long-term market equilibrium.

Competition from mortgage originators is also forcing the banks to compete with the lowest prices for mortgages. Originators then earn commission from the banks of between 1,5% and 2% of the loan amount.

Full article in Financial Mail

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