A tough start for Big Four
Major banks may see recovery in second quarter
SOUTH Africa’s banks are set for a rocky start this year as billions of rands in loans owed to them have not yet been repaid.
Analysts said the economy appears to be slowly recovering but South Africa’s biggest banks are anticipating a bad financial start to the year, as they struggle to recover R100 billion in unpaid loans left over from last year.
The four banking giants – Absa, Nedbank, Standard Bank and FirstRand Bank – will report poor earnings for last year and the first quarter of this year as R100bn in loans rendered to consumers last year has not yet been repaid.
Catherina du Toit, a global financial analyst at Sanlam Investment Management Global, said the banks’ financial situation would carry over into the rest of the year.
She said this was a serious situation and was part of the recession’s aftershock.
Soaring bad debt had resulted in the banks not making enough profit for last year and they would definitely report lower-than-normal earnings for the first half of this year as well, she said.
“The ear nings of South African banks have been negatively impacted by bad debt.”
The local banks’ situation was shared by their “international peers”, except that financial companies in the US had been more proactive in writing off loans and “their earnings will thus recover quicker”.
This was despite the fact that US banks had been the hardest hit during the peak recession panic.
Local financial companies told Weekend Argus they could not discuss the matter of bad debt as it was early in the year and they were in a closed period where they could not discuss results and other issues.
Du Toit said little effect was felt by local banks compared to other developed international markets during the recession; however, domestically, the situation had already attracted problems.
The analyst said they had already seen a number of job losses in the banking industry, although she could not say how many people have been retrenched.
According to reports earlier this week, statistics have shown that the banks’ performances last year suggested the companies were headed for “low profits” this year.
Paul Egan, a managing con- sultant at the University of Cape Town’s Unilever Institute, said a study conducted in May last year had shown that mass job losses had seen people struggling to repay their debts to banks.
“People became more financially inflexible. Little expenses such as food and transport had taken most of their income. Forty eight percent of them said they were even denied credit and the number increased to 60 percent by November,” said Egan.
Kokkie Kooyman, the head of the Sanlam Investment Management Group, said earlier this week that Absa and FirstRand, South Africa’s leading finance corporates, would be hardest hit due to their exposure to vehicle financing and half-fledged enterprises.
Du Toit said South Africa’s corporate sector had withstood the economic downturn better than some others overseas.
“This type of history shows that the four banking giants will most probably recover from the hit at the beginning of this year’s second quarter.”
Standard Bank would be able to withstand the strain due to its coverage with international markets, which are said to be growing tremendously.
Nedbank, as the fourth biggest bank, would be able to “stand in good stead, as the global economic recession had not effected a collapse in midsized companies”.
Du Toit said the banks were very willing to restructure loans.
“But if this fails, it is safe to assume the banks will use all measures possible to try and recover bad debt.”
The measures could include issuing lawyers’ letters and hiring debt collectors – which cost a fortune.
HARD HIT: South Africa’s top banks have been affected by bad debts due to the recession.