Customers too scared to sign for loans

Nedbank had the dubious distinction of being the first of the big retail banks to publish its results for the six months to end June, setting the tone for what investors can expect from the banking sector this year.

While Nedbank could only eke out a 2.6% increase in headline earnings, the results didn’t contain any bad surprises – everybody knows the economy’s performing poorly and the banking industry is one of the first to reflect this.

CEO Mike Brown isn’t shy to spell out the problems. “The SA economy performed worse than expected in the first six months of the year and our forecast for GDP growth has been reviewed down from 1.3% to 0.5%.

“Significantly more urgency is required with the implementation of structural reforms to stem the current economic and fiscal deterioration in the economy.

“If we are unable to do this, all the hard work done to maintain our last investment grade rating from Moody’s will be in vain.”

Group CFO Raisibe Morathi says policy uncertainty, Eskom’s issues and the land debate are all pertinent problems confronting the economy.

The Eskom effect

Commenting on the interim trading environment, Nedbank says the effect of Eskom’s problems shouldn’t be underestimated. “The decline in economic growth was largely as a result of electricity shortages and load shedding at a frequency and intensity not experienced since the 2008 electricity crisis. This impacted on the energy-intensive and export-orientated mining and manufacturing sectors.”

The results for the period clearly show households and businesses are very cautious. Nedbank reported advances increased only 6.7%, and deposits 8.1%.

“There are still indications of stress and many people have adopted a wait-and-see attitude,” says Morathi.

She adds that people tend to take smaller loans than they can afford, or choose to reduce debt rather than take out new loans.

Nedbank noted a definite cut back in spending by households as increased unemployment levels, slowing income growth and rising fuel prices eroded households’ spending power.

Net interest income increased by a rather subdued 5.8% and non-interest revenue by 5.2%.