SA banks face R74bn in unpaid loans in 2024
S&P Global Ratings has forecast SA’s banking sector will lose about R74bn, or 1.4%, in unpaid loans, almost double the lowest rate they have lost, reflecting the broader economic tremors shaking the country.
S&P Global Ratings’ comments late on Tuesday came a day after Absa laid bare its financial soul for the year to endDecember, showing it took almost R16bn in credit writedown charges or amounts the bank would not be able to collect according to terms of the loans. That sent its credit loss ratio to 1.18%, a notable increase from 0.96% a year earlier.
The projection that banking sector credit losses will average 1.4% this year mirrors the macroeconomic strain gripping SA consumers and businesses. The historical low for credit losses in the sector is 0.75%. The industry, worth R7.4-trillion by assets, was sitting on R5.3-trillion in total loans and advances in November 2023, according to the latest Reserve Bank financial stability review.
High interest rates and soaring food prices are immediate culprits, with the former having surged a staggering 475 basis points (bps) since November 2021. Inflation, which Reserve Bank governor Lesetja Kganyago describes as a stealthy thief eroding the purchasing power of mainly the poor, is expected to average 5% this year.
The agency expected nonperforming loans, or those that are in arrears for more than 90 days, to remain above 4% of system-wide credit, a scenario that is likely to see an increasing number of clients’ credit applications being rejected.
The S&P Global Ratings’ estimates, as well as the latest financial disclosures from the banks, come about two weeks before the Reserve Bank’s monetary policy committee meets to decide the direction of interest rates. Economists expect the Bank to start the easing cycle in September, with forward rates pricing in less than 50bps worth of cuts this year.
“We anticipate Absa Group’s credit losses will remain elevated in 2024,” said S&P Global Ratings. Even so, the agency said Absa’s earnings were expected to remain resilient.
It is unclear why S&P used
Absa’s earnings report as a mirror for the industry-wide and economic pulse.
But Absa, whose loan book is skewed significantly towards consumer lending, is falling behind rivals, operationally. Its retail loans account for nearly half of its total loans, higher than the average of about 40% for the country’s top four banks.
It reported virtually no growth in headline earnings in the year, contrasting with an 11% rise for Nedbank and expectations of as much as 30% at Standard Bank. FirstRand, aligning its fiscal year to end-June, has already seen a 6% increase at its midyear mark.