Nonperforming loans as a percentage of advances at South Africa’s four biggest banks were 2.8% by the end of June, according to PricewaterhouseCoopers.
The banks have boosted provisions and had a combined total capital adequacy ratio of 15.4% by the end of June, higher than required by the global Basel benchmark. They haven’t forecast how much bad debts linked to farming loans may rise this year. PSG’s Cloete said he lacked the data from banks to make accurate estimates of what proportion of the loans extended to farmers could turn bad.
The effect of the drought was only likely to be felt towards August, once some crops were harvested, said Ernst Janovsky, a senior agricultural economist at Barclays Africa. The bank’s diversified loan book would soften any blow from the weather, he said. Both Barclays Africa and Standard Bank said they would continue to lend to farmers. “This year will be challenging because of a number of deteriorating economic fundamentals, slow growing economy, high unemployment rate, a volatile rand that reached record low levels recently, increasing inflation and interest rates,” said Groenewald at Standard Bank.
“The drought conditions will add to those challenges.”