Standard Bank CEO joins the chorus of warnings for South African consumers

Although Standard Bank reported strong financials for the 2023 financial year, the group is showing signs of continued economic strain on its customer base – with chief executive Sim Tshabalala warning that tough times are likely to continue into the first six months of 2024.

Reporting its full-year results for 2023, the group reported earnings growth of 27% and a return on equity of 18.8%.

Group net income grew to R177 billion (from R140.1 billion before), with headline earnings growing 27% to R42.9 billion.

However, the bank noted that in South Africa, credit impairment charges increased across all portfolios, compounded by the non-recurrence of credit recoveries on the payment holiday portfolio in 2022 (R500 million).

As a result, credit impairment charges increased by 22% to R16.3 billion.

The Bank added that the increase in charges was driven by new loan origination, client strain driving partial payments, negative sovereign risk migration, and new defaults in the industrial sector and legacy exposures in the consumer sector.

Commenting on the financial stress on households in South Africa, Tshabalala said he unfortunately expects clients to remain constrained until interest rates start to decline.

“Our clients are likely to remain constrained until interest rates start to decline. Credit impairment charges are expected to peak in the first six months of 2024, driven primarily by ongoing strain in Personal & Private Banking,” he said.

For FY24, the credit loss ratio is expected to remain within but near the top of the group’s through-the-cycle credit loss ratio range of 70 to 100 basis points – with 2023’s ratio toeing the line at 98 bps.

Other banks in the same boat

Several credit providers in South Africa have reported an increase in bad debts, resulting in a rise in impairments across all major banks.

In Absa’s case, their credit impairment charges increased by 13.4% to R15.5 billion in the financial year that ended on December 31, 2023.

The everyday banking segment contributed to almost half of these impairments. Absa also noted that the credit loss ratio increased from 96bps to 118bps, which is beyond the group’s through-the-cycle target range of 75 to 100bps.

However, the credit loss ratio improved in the second half of 2021 to 109bps from 127bps in the first half.

Absa’s group headline earnings increased by 1% overall, but when looking only at South Africa, they dropped by 18% to R14.676 billion.

On the other hand, Nedbank’s overall headline earnings per share increased by 15% over the same period. However, this growth was partially offset by the 30% increase in the impairment charge.

Although Nedbank’s credit loss ratio improved from 121 bps in the first six months of the year to 109 bps by the end, it was still higher than the 89bps seen in FY22.

During the six months leading up to 31 December 2023, FNB experienced a 31% increase in its impairment charges.

This caused the credit loss ratio to rise from 128 basis points in the previous reporting period to 155 basis points.

Credit analytics group Experian noted in its latest Consumer Default Index that these are clear signs South Africans are struggling to stay afloat.

the National Credit Regulator noted the appetite for consumer credit has increased substantially while approval levels for credit remain low (31.1%), showing consumers are in distress.

“These findings have significant implications for financial institutions operating in South Africa.

“With an increased risk of defaults, particularly in home loans and credit cards, banks and other lenders may need to reassess their risk management strategies and lending criteria,” said Experian.

Read: Standard Bank adds 670,000 customers in South Africa – with households under strain