Nedbank revises growth forecast for 2020

Nedbank has revised its growth forecast for 2020 and 2021. It now expects that GDP will contract by 9.2% this year, down further from 7%, and predicts it will grow by 2.5% next year, up from its earlier forecast of 2.2%.

“The SA Economic Reconstruction and Recovery Plan announced by president [Cyril] Ramaphosa, contains many practical initiatives which together should improve the underlying investment environment and unlock greater job creation and faster economic growth,” the bank said on Thursday (29 October) in a voluntary trading update for the nine months ended 30 September 2020.

“Much now depends on how quickly the specific measures proposed in the plan can be implemented,” it added.

The bank said in a voluntary trading update for the nine months ended September 2020, that the medium term budget policy statement (MTBPS), delivered this week, by finance minister Tito Mboweni “had no surprises and few new insights”.

“SA’s debt trajectory is, however, substantially worse than reflected in the Supplementary Budget. The MTBPS reiterates the need to make difficult choices to stabilise debt, stressing that failing to do so could lead to a fiscal crisis,” the bank said.

“The fiscal policy path presented will be a further drag on SA’s recovery, with higher taxes and spending constraints likely to weigh on incomes, earnings and growth,” it said.

The bank said the Covid-19 pandemic, subsequent lockdowns and market volatility in March were “extreme events” and its negative impact is expected to continue for “some time”.

“While these are very challenging times, we are well prepared to respond to and manage the risks that have emerged,” Nedbank chief executive officer Mike Brown said.

“The group remains profitable and capital and liquidity ratios are strong and above board approved minimum targets and well above all regulatory requirements,” he added.

The bank has restructured more than 400,000 loans in the reporting period amounting to R121 billion. It also paid out R1.1 billion under the government’s small and medium-sized enterprises loan guarantee scheme.

Retail loan applications are back to pre-lockdown levels for all the bank’s major products. This is because of “pent up” demand during the lockdown on home loans and vehicle finance, the South African Reserve Bank (SARB) lowering the interest rate by 300 basis points.

The gross loans and advances grew from 1% in the first half of 2020 to 3% in retail and business banking. The growth of gross banking loan and advances in corporate and investment banking slowed from the 10% reported in the first half of 2020 as clients accessed committed liquidity facilities during the peak of the pandemic.

The collection of rent on commercial properties continues to improve, climbing from a low of 67% in April, to 88% in July, and 94% in August.

Impairments in retail and business banking reduced during Q3 of this year compared to Q2.

Higher levels of credit life claims have led to a decline in insurance income. These claims are expected to peak in the second half of 2020, the lender said.

Tito Mboweni said Wednesday (28 October), that the South African economy is expected to contract by 7.8% in 2020, while the 2021 outlook is more uncertain. He forecast the South African economy to grow by 3.3% in 2021, 1.7% in 2022 and 1.5% in 2023.

Read: Tax hikes for South Africa as it faces a possible ‘debt trap’

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Nedbank revises growth forecast for 2020