Banks ’ rising bad debts hurt earnings

File photo. Picture: Gallo Images/Thinkstock.
File photo.Picture: Gallo Images/Thinkstock.

Worsening economic climate putting pressure on consumers

Bad debts among South Africa’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‚ according to 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 then than they are now,”

PwC banking and capital markets leader Costa Natsas said.

“The current crisis is starting to impact the underlying affordability of the consumer.”

PwC’s major banks analysis‚ which analyses the financial results for the six months to June of Barclays Africa‚ FirstRand‚ Nedbank and Standard Bank‚ has found that bad debts increased 26.8% from the previous comparable period‚ to R17.2-billion.

This hurt banks’ combined earnings. Core earnings increased14.2% year on year toR65.8-billion‚ but headline earnings grew 5.7% to R34.6-billiondue to the higher bad debt charge.

“Banks are finding it quite difficult to navigate in this macro-economic environment‚”

PwC Africa financial services leader Johannes Grosskopf said.

Non-performing loans had increased across all lending portfolios for the first time in five years‚ he said.

Credit stresses had emerged in previously high-growth portfolios including personal unsecured loans‚ card lending and instalment finance‚ reflecting the difficult economic environment in South Africa‚ PwC said.

Similarly‚ the corporate banking franchises of major banks‚ in particular within the oil and gas‚ and power and infrastructure sectors‚ have found that non-performing loans have increased.

“The corporate sector is not immune to the economic downturn and we are starting to see an increase in impairments‚”

PwC banking and capital markets associate director Lourens van Velden said.

Banks had taken a conservative approach to making provision for future bad debts‚ according to PwC‚ indicating that they expected the credit cycle to worsen.

“A number of banks have in their base-case scenarios a good possibility of a downgrade‚”Grosskopf said.

He said all the banks had contingency plans in place in the event of a sovereign debt downgrade.


Leave a Reply