Bad debt, earnings weigh on Standard

● Presenting bleak first-half results this week, Standard Bank Group CEO Sim Tshabalala offered insights on the debt relief customers have sought from the bank — and on why there has been limited appetite for the R200bn government-backed loan guarantee scheme intended to help small and medium companies weather the Covid crisis.

Tshabalala said the guarantee scheme came after SA’s banks had already taken the initiative to provide their customers with extensive debt relief. The low take-up was also an issue of supply and demand: “You can’t force it; there hasn’t been as much demand for the loans as people assumed there would be … a large percentage of small businesses and commercial and corporate clients are still very nervous about the economy and they are sitting on deposits.”

The conditions, especially on surety, have also been an issue for customers, said Tshabalala, though changes have been made.

His comments came as Standard Bank reported it had hiked its bad-debt provisions to R11.2bn. It also reported a 44% decline in headline earnings to R7.5bn for the six months to end-June. The decline would have been even worse but for the group’s Africa regions, which increased their headline earnings by 11%. Its banking operations in SA saw earnings crash by 72% to just R2bn, as bad-debt provisions were almost tripled and interest and fee income slowed.

Rival Nedbank, which reports first-half results this week, warned in a trading statement on Thursday that its headline earnings per share are now expected to be between 67% and

72% lower than the same period last year. Absa reports tomorrow with earnings also expected to be down.

Tshabalala’s comments came, too, after the Banking Association met finance minister Tito Mboweni and Reserve Bank governor Lesetja Kganyago on Wednesday to discuss the measures banks are taking to support the economy — and the loan guarantee scheme, under which the banks have so far lent out just R14bn of the initial R100bn, to 10,000 businesses, with a further 15,000 applications still being processed.

This compares with R537bn of loans banks in their own right have voluntarily provided for debt relief and payment holidays to their customers since the start of SA’s Covid crisis in March.

Standard Bank itself has approved R8.1bn of loans under the scheme, of which R2bn has been paid out so far, as conditions and contracts are finalised.

Tshabalala said it had provided relief to personal and business clients on R118bn of loans, and on corporate loan exposures of a further R48bn, while subsidiary Liberty had also provided short-term relief to clients.

As with most banks, the debt relief was for three months and at Standard about half of those who had applied for interest holidays have now resumed paying, with the payment rate at 92%, while the other half have asked for relief to be extended.

The finance ministry said this week that the recently announced move to lockdown level 2 would support the reopening of significant parts of the economy. “With firms adjusting to the next stage of the pandemic, it is hoped that the economic recovery will strengthen and the demand for credit will improve,” the Treasury said in a statement.

Changes to the scheme include a business restart loan and changes to the credit assessment criteria.

Mboweni said after this week’s meeting with the banks: “The banking industry’s openness to discuss design improvements is particularly appreciated and I note that many countries have adjusted the design of their respective schemes from time to time to respond to changing circumstances.”

Businesses are still very nervous about the economy