SA Affordable Housing July - August 2019 // Issue: 77 | Page 32

FINANCE MATTERS
Affordability assessment
of a commercial bank
All credit needs to be lent on a fair and sustainable basis to
ensure that both the borrower and lender are protected and
that the loan is beneficial to both parties.
By Pierre Venter, Banking Association South Africa
There is strong indication that consumers are increasingly taking out consumption credit as opposed to wealth creating credit,
such as a home loan.
T
here are several factors which need to be considered
before a bank approves a mortgage loan; here we
explain the process that is undertaken by a mortgagee
before a mortgage is granted.
A credit agreement is a broad term used to describe all
forms of contracts (formal or informal) that has a credit
component. The most common credit agreement that retail
banks enter into with clients are credit facility agreements
(credit cards and overdrafts) and credit transaction
agreements (mortgage loans).
Banks are no different to any other business or
businessperson in that they must abide by the laws of the
country. In fact, banks are one of the most regulated and
legislated industries and for good reason as one of the core
functions of a bank is to lend money. The money lent to
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JULY - AUGUST 2019
consumers is primarily depositors’ money and not money of
its own and therefore it is necessary to ensure that banks are
commercially viable and sustainable.
So, to ensure that the credit (loans) that banks provide are
fair and equitable they need to be regulated in a way that is
sustainable to both borrowers and lenders alike. On the one
hand, borrowers need to be protected from practises that
are exploitive and oppressive. On the other hand, lenders
must ensure that payments are received as per the
agreement and that there is a legal mechanism for recourse
in the event that the loan agreement is not upheld or if the
borrower defaults on the loan.
The overarching legislation that governs credit
transactions is the National Credit Act 34 of 2005 (NCA). All
credit agreements which are at ‘arm’s length’ that are
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