R27 billion blow for Absa, FirstRand, Nedbank and Standard Bank in South Africa

South Africa’s ‘Big Four’ banks—Absa, FirstRand, Nedbank, and Standard Bank—suffered a R27 billion loss in the first half of 2024 due to bad debt charges.

This is according to the Major Banks Analysis report by PwC for the first six months of 2024.

The firm noted that certain amounts and ratios were recalculated using publically available data and figures to present comparable six-month results.

The report noted that despite the challenging operating environment, the country’s major banks have registered positive growth.

The combined headline earnings of these four banks increased by 2.5% compared to the first half of 2023, reaching R56.8 billion compared to the previous year.

However, their average credit loss ratio is 100 bps, although this is lower than the 102 bps record in 2023.

In South Africa, PwC noted that credit impairments have increased to the upper end of “through-the-cycle” levels.

Additionally, their bad debt reached R27.1 billion.

Bad debt charges occur when a borrower defaults on their loan, meaning the bank needs to write off or provision funds against these non-performing loans.

This charge negatively affects a bank’s profitability and financial stability.

In South Africa, elevated bad debt charges are directly linked to the tough economic conditions exacerbated by inflation, high interest rates, and low economic growth.

Consumers and businesses alike are facing difficulties in repaying their debts, resulting in an increase in non-performing loans.

South Africa’s major banks, therefore, have been forced to set aside significant amounts to cover potential losses, pushing their bad debt charges higher than anticipated.

In 2024, South African banks have been hit hard by elevated bad debt charges due to challenging economic conditions.

High interest rates, inflation, and sluggish GDP growth have increased pressure on borrowers, leading to higher default rates.

As a result, banks have been forced to set aside substantial provisions to account for the expected losses from unpaid loans.

According to PwC’s South Africa Major Banks Analysis, the relationship between interest rates and credit impairments is evident.

Rising rates place pressure on household budgets and business cash flows, leading to an increase in defaults.

This effect is more pronounced in consumer and small business segments, where higher borrowing costs disproportionately affect debt servicing​.

Household debt in South Africa has also been a major concern, with many individuals struggling to manage increased living costs alongside elevated interest rates.

More than 10.1 million South African consumers had impaired credit records by early 2024, and this number has continued to rise as more households fall behind on payments​, PwC said.

Additionally, while impairments in the retail lending sector have stabilised, the corporate sector has emerged as a significant area of concern.

According to PwC’s analysis, impairments in corporate lending portfolios rose due to sector-specific risks, with companies facing increased borrowing costs and operational challenges.

The elevated impairments in the corporate sector have further driven up the overall bad debt charges for South Africa’s major banks.

The R27 billion loss suffered by South Africa’s four major banks in the first half of 2024 is a stark reflection of the economic challenges the country faces.

Bad debt charges have risen sharply as more borrowers—both individuals and businesses—fail to meet their debt obligations.

The combination of high interest rates, weak economic growth, rising household debt stress, and increased corporate lending risks has created a perfect storm of elevated credit impairments.

As South Africa navigates these economic difficulties, the banking sector will need to carefully manage its loan books and provisions to mitigate further losses.

While the hope remains that interest rates will ease and economic conditions will improve, the current environment presents significant challenges for the country’s financial institutions.

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