A tough start for Big Four

Ma­jor banks may see re­cov­ery in sec­ond quar­ter

Weekend Argus (Saturday Edition) - - ISSUES - VUYO MABANDLA

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.

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