Bad debts may be worse than during crisis

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.