Financial services group and Africa’s biggest lender by assets, Standard Bank warned on Wednesday (3 March) that it expects to report a substantial decline in earnings for the year ended December 2020 as it struggles with unsecured loans.
The lender said it expects headline earnings per share to be between 40% and 50% lower, while earnings per share are anticipated to be between 45% and 55% lower than in 2019.
Standard Bank warned at the end of November last year that it had identified pockets of pressure in its Personal & Business Banking (PBB) portfolio, particularly within personal unsecured lending.
An unsecured loan is credit extended by the lender that doesn’t require any type of collateral. Instead of relying on a borrower’s assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness. These loans can include personal loans, student loans, and credit cards.
The bank said in November that balance sheet growth has slowed, margin pressure continues, as the impact of previous interest rate cuts filter through. The country’s repo rate is at an all-time low of 3.5%, following numerous cuts in recent quarters, to try to kick-start a stagnant economy. The prime lending rate is at 7%.
Moody’s Investors Service warned at the end of January, that 2021 will be a challenging year for banks in the country, with trading conditions remaining difficult.
The outlook for the South African banking system is negative, driven by persistent challenging operating conditions, deteriorating loan performance and lower profitability, Moody’s Investors Service said in its report. Banks’ stable funding, good liquidity and capital buffers will mitigate risks and protect financial stability.
Overall, operating conditions will remain weak for South African banks over the outlook period, with economic activity remaining sub-par amid limited progress made on economic reforms. Weakened corporates and households, along with subdued business opportunities, will dampen banks’ financial performance.
“We expect loan performance to deteriorate in 2021, with problem loans to continue rising beyond the 5% of gross loans reached in November 2020, as both corporate and household balance sheets are stretched by weaker profits and disposable income,” said Constantinos Kypreos, senior VP at Moody’s Investors Service.
“That said, banks’ good risk management, low interest rates and government support measures should help contain the deterioration and keep non-performing loans at single-digit levels.”
Lower dividend pay-outs and other capital enhancing measures will help maintain capital metrics at current levels, Moody’s said.
Standard Bank said in November that its position on the declaration of a final dividend for the full year 2020 has not yet been decided.