Standard Bank, South Africa’s biggest lender by assets, says that while initial indications are that credit collections have improved in the third quarter, relative to the prior quarter, retrenchment claims have also increased.
Lockdowns continued to be eased or lifted in the areas in which it operates the third quarter, the bank noted in an update on Tuesday (20 October). However, in South Africa, the growth forecast remains unchanged from those provided in August, namely that real GDP is expected to contract by 8.5% in 2020 and expand by 4.5% in 2021.
“While real GDP is also expected to contract on average across the countries in which we operate in sub-Saharan Africa (excluding South Africa), the contraction is expected to be much less severe than in South Africa,” Standard Bank said.
It warned that group profit attributable to ordinary shareholders for the nine months to 30 September 2020 was 52% lower than the comparative period, while group headline earnings was 39% lower than in the comparative period.
The group’s net asset value has grown 5% year to date, Standard Bank said.
By 30 September 2020, the Personal & Business Banking South Africa (PBB SA) client relief portfolio had declined from R107 billion as at 30 June 2020 to R61 billion, it said.
On the lapsed accounts – where the payment holiday period granted had expired and the relief had not been extended – the average monthly instalment payment rate was >95% for the secured portfolios (mortgages and VAF), >90% for the unsecured portfolios (card and personal unsecured) and 100% for business lending.
Of the extended portfolio – where the payment holiday period granted had expired and the relief period had been extended – 83% was secured, the lender said.
Highlighting further positive signs, Standard Bank said that attractive house prices and lower interest rates in South Africa supported sales activity and in turn, mortgage disbursements in the quarter
Period on period, growth in Personal & Business Banking’s unsecured portfolios continued to outpace that of the secured portfolios.
The significant interest rate cuts year to date are an increasing drag on margins and net interest income (NII), the group said. “In South Africa, we do not expect any further interest rate cuts this year – after cumulative cuts of 300 basis points to the end of July 2020. We expect a 25 basis point increase in 2021.”
“Credit trends to date are in line with our expectations,” the lender said. While initial indications are that collections have improved in 3Q20 relative to 2Q20, retrenchment claims have also increased, it said.
“The latter, combined with broader customer stress, resulted in an increase in non-performing loans and additional impairment charges as balances transferred from stage 1 or 2 to stage 3.”
Standard Bank said that there remains a risk that the environment deteriorates, and the portfolio performance is worse than currently expected; for example, due to new waves of infection, subsequent lockdowns and further job losses.
“Looking forward, the Covid-19 pandemic, together with global economic weakness, elevated uncertainty and depressed sentiment, is expected to negatively impact employment, incomes and equality globally,” it said.