Prudential authority undaunted by challenges facing SA banks in Africa

SA lenders can ride out a buildup of the bad debt elsewhere in Africa, says the head of the country’s banking regulator amid mounting fear about rising risk to about R600bn worth of assets exposed to the continent that is crying out for debt relief.

Comments this week from Kuben Naidoo, the head of the Reserve Bank’s prudential authority, came after the G20 nations agreed to freeze bilateral government loan repayments for low-income countries until year-end to free up money to tackle health and economic crises sparked by the Covid-19 pandemic.

The G20 forum also urged private creditors to match the debt-standstill initiative, piling pressure on SA lenders such as Standard Bank and Absa to participate in the relief programme. “If I take the consolidated big five banks, their consolidated share outside of SA is about 12% [of total assets], and there are good assets there in the main,” Naidoo told Business Day.

“I am sure they are taking a hit in some countries, especially oil-rich countries, but does it pose a risk to our banking system? No. Does it pose a risk to the groups? No.”

According to the latest financial stability review of the central bank, SA lenders have total assets of about R5.5-trillion.

Standard Bank and Absa have the biggest footprint on the continent, where clients that include governments, national departments and state-owned companies trawl their coffers to tackle the public health emergency that has quickly morphed into an economic contagion.

The list of countries in the G20’s initiative includes many countries in Africa in which South African banks such as Absa and Standard Bank have large operations. This includes Angola, Ghana, Nigeria, Kenya and Zambia.

Standard Bank, which generates about 31% of its earnings across operations that span much of Sub-Saharan Africa, was noncommittal on whether it would participate in the programme. “Our response is always guided by the need to strike a balance between sound banking practices and the individual client’s circumstances,” the group said in response to questions from Business Day.

Rival Absa, which said its exposure to sovereign, government and public sector entities collectively accounted for 11% of its assets, which amounts to about R154bn, was taking a more nuanced approach to the blanket relief that social groups and the G20 have called for.

It said that it had undertaken extensive research “with a view to developing meaningful payment relief options where possible. This includes measures such as payment holidays, an interest moratorium, fee reductions and, where relevant, bespoke debt restructurings.”

In addition to the fallout from the pandemic, the simultaneous collapse in the oil price in part due to Saudi Arabia attempting to recover market share by increasing volume at a time when demand has sharply declined has drastically affected many African countries that rely on oil sales for revenues that include Angola, Nigeria and Ghana.

“We have slashed our GDP projection, and now see the economy contracting by 3.7% in 2020. This is of course due to the lockdown measures imposed in that country and the effect this will have on domestic economic activity, but as always with Nigeria, this is to a large extent an oil story,” said Jacques Nel, head: Africa Macro at NKC African Economics.

But even though oil accounts for only 10% of the Nigerian economy according to figures provided by Trading Economics, its effect on government finances is outsized as the country generates half of its tax revenues from sales of crude oil.

Standard Bank provided the first marker of what is to come when it announced on Wednesday that earnings for the first quarter of 2020 were 27% lower than in the matching period in 2019. Credit impairment charges for the period were significantly higher than in the previous year.

BANKING REGULATOR DOES NOT EXPECT SA'S LARGEST BANKS TO ENCOUNTER ANY MAJOR DIFFICULTIES DUE TO THE CORONA VIRUS PANDEMIC