Business Day

Bad debts may be worse than dur­ing cri­sis

- HANNA ZIADY In­vest­ment Writer zi­adyh@bdlive.co.za Business · South Africa News · Finance · Banking · Financial Crisis · World Finances · Barclays · FirstRand · Nedbank · Standard Bank Group

BAD debts among SA’s big four banks look set to reach lev­els higher than dur­ing the global fi­nan­cial cri­sis, as a wors­en­ing eco­nomic en­vi­ron­ment places pres­sure on con­sumers and cor­po­ra­tions, says PwC.

“South African banks were quite cush­ioned from the im­pact of the global fi­nan­cial cri­sis, and in­ter­est rates and in­fla­tion were in a bet­ter place than they are now. The cur­rent cri­sis is start­ing to im­pact the un­der­ly­ing af­ford­abil­ity of the con­sumer,” bank­ing and cap­i­tal mar­kets leader at PwC SA Costa Nat­sas said.

PwC’s ma­jor banks anal­y­sis, which analy­ses the fi­nan­cial re­sults for the six months to June 2016 of Bar­clays Africa, FirstRand, Ned­bank and Stan­dard Bank, has found that bad debts in­creased 26.8% from the pre­vi­ous com­pa­ra­ble pe­riod, to R17.2bn. This hurt banks’ com­bined earn­ings, which grew a mod­est 5.7%.

“Banks are find­ing it quite dif­fi­cult to nav­i­gate in this macroe­co­nomic en­vi­ron­ment,” fi­nan­cial ser­vices leader at PwC Africa Jo­hannes Grosskopf said. Non­per­form­ing loans had in­creased across all lend­ing port­fo­lios for the first time in five years. Credit stresses had emerged in pre­vi­ously high­growth port­fo­lios in­clud­ing per­sonal un­se­cured loans, card lend­ing and in­stal­ment fi­nance, re­flect­ing the dif­fi­cult eco­nomic en­vi­ron­ment in SA.

Sim­i­larly, the cor­po­rate bank­ing fran­chises of ma­jor banks, in par­tic­u­lar within the oil and gas, and power and in­fra­struc­ture sec­tors, have found that non­per­form­ing loans have in­creased. “The cor­po­rate sec­tor is not im­mune to the down­turn and we are start­ing to see an in­crease in im­pair­ments,” PwC bank­ing and cap­i­tal mar­kets as­so­ciate di­rec­tor Lourens van Velden said.

Banks had beefed up pro­vi­sions for non­per­form­ing loans since the global fi­nan­cial cri­sis, said Grosskopf. They had also ex­tended fewer home loans in the past few years, and pric­ing on loans had in­creased. Not­with­stand­ing these mit­i­gat­ing fac­tors, the slower econ­omy would in­crease im­pair­ments, he said.

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