By Pinky Khoabane
In the article on How FNB robbed Black Bondholders of R3bn and ended in the Equality Court, John Duncan made the following comments but beyond that, I perused research findings by Munro Consulting and Actuaries, which was asked to determine if race played a role in determining the interest rates on outstanding loans at Saambou, whose book was later bought by FNB.
(1) Duncan: You will find that “High Risk” bondholders of all races are discriminated against in exactly the same way”
Mr Emerald van Zyl, the financial investigative consultant involved in the FNB Equality Case responds:
Bondholders of low cost housing are less risk than bonds in High Cost Housing. Most of the clients of low cost housing is government employees like teachers, medical staff, and Police Services, and their monthly instalments are paid with a debit order.
The older your bond, the risk decreases as your salary increases every year and the value of your property increases.
Therefor the statement of Duncan is incorrect.
The Usury Act and the National Credit Act determines that a financial institution cannot increase your interest rate as agreed upon if your account is in arrears or if your risk profile increases. The only time that your agreed interest rate can be changed is if the parties entered into a new agreement
(2) John wanted to know how low cost is defined:
- Large loans are those are those registered for more than R 150 000
- Medium loans are those registered for between R 100 000 and R 150 000
- Small loans are those registered between R 0 and R 100 000.
(3) Other interesting findings by Munro Report
- Large loans have an average interest rate of 1% below prime
- Small loans have an average interest rate of 1% above prime.
- Medium loans have an average interest rate of approximately prime.
- It can be clearly seen that in each loan size category, Black and Coloured clients have higher interest rate gaps than white clients. For example:
- White clients with large loans pay on average 1.1% below than prime whilst black & coloured clients pay approximately 0.45% below than prime
- White clients with medium loans pay on average 0.1% below than prime, whilst black & coloured clients pay 1% above than prime.
- White clients with small loans pay on average 0.75% above prime, whilst black and coloured clients pay more than 2% above prime.
- Conclusion regarding loan size: The size of the loan originally registered is a key determinant of the interest rate charged. However, in addition to this, the race of the client is significant in determining the interest rate gap.
- Black and coloured clients within the same loan size groupings pay higher interest than white clients
- Black and coloured clients within the same product type pay higher interest than white clients
- Black and coloured clients within the same suburbs pay higher interest than white clients
- CONCLUSION Black (and coloured) clients in the data set provided are being charged higher interest rates than white clients. This is after taking into account the other determinants of the interest rate charged, i.e.: Loan size (small, medium and large) Product type (PR050, PR051, PR086) Loan type (high cost vs. low cost) Suburb (across suburbs, and within suburbs)