The recent downgrade by Moody’s on Standard Bank, Absa, FNB and Nedbank, caused the JSE’S banking index to slide to a five-week low, after the government was forced to bailout lender African Bank Limited.
According to Gary Palmer, CEO of Paragon Lending Solutions, the downgrade may prompt banks to tighten their lending regulations to business in the property sector because of fears that they may default on their loan repayments. This would mean that businesses in the property sector, which need to have to access to available funds at short notice in order to secure property transactions as they arise, will be affected as they won’t be able to transact quickly.
He explains that due to the financial recession, banks are very cautious of incurring high levels of indebtedness from businesses in the property sector, and are therefore likely to implement stricter lending criteria. Palmer says that however, as non-bank lenders are not regulated like the banks, they are able to authorise and process finance solutions which banks can’t.