Banks must clarify fate of debt after expropriation – IRR

1 April 2021

The Institute of Race Relations (IRR) has asked the Banking Association of South Africa (BASA) to spell out its plan of action on settling mortgage bonds on expropriated property should the Expropriation Bill be passed in its present form.

In its letter to BASA today, the IRR asks how banks “will … settle outstanding debts on encumbered properties that are expropriated without compensation, or for compensation significantly below market value?”.

Land stands as collateral in approximately R1.6 trillion worth of debt and BASA’s submission to parliament warns that the Expropriation Bill in its current form could trigger a financial crisis by undermining the property rights upon which the capital-allocation system depends.

The IRR points out that where there are outstanding loans on expropriated properties, “either the expropriated title-deed holder will still be obliged to bay back his or her debt in full; or the bank will write off the loan that was connected to the property before its expropriation; or a combination of both. Our question is, which will it be?”

If banks plan to force victims of EWC to continue repaying their loans, this needs to be clearly explained to clients in good faith. If banks plan to absorb any loss by writing off such debts, this needs to be clearly articulated to shareholders as well.

The IRR notes that resolving the current ambiguity around the BASA members’ current plan of action “will, we hope, be a simple matter of stating your intentions in clear terms understandable to ourselves, your clients, and the nation.”

Issued by Gabriel Crouse, IRR writer and analyst, 1 April 2021