Africa-Press – South-Africa. Africa’s biggest lender Standard Bank says more customers are falling behind with their debt repayments after a rapid rise in interest rates, while it is also battling with increased risk of sovereign defaults on the continent.
In an update on Tuesday, it warned impairment charges surged almost 50% in the five months to end-May, hit by consumer strain, greater risk of sovereign defaults, but also growth in its loan book.
“Credit impairments related to consumer banking customers are currently elevated, primarily in SA and, particularly, in home loans, on the back of rapid interest rate hikes and sustained high inflation levels, which has resulted in some customers being unable to meet their debt obligations in full,” wrote the bank in the trading update.
Despite this, the group, valued at over R300 billion on the JSE, still expects headline earnings per share to grow more than 20% in its half-year to end-June. It said on Tuesday it had been boosted by the endowment impact of higher interest rates, which means debtors need to pay more on their loans, as well as “improved customer activity levels.’
Shares in Standard Bank were up more than 2% in morning trade on Tuesday, and have risen more than 9% over the past year.
Standard Bank previously promised not to shut off its lending taps to the same degree as some of its peers.
Standard Bank said that while its credit loss ratio at the group level was still within its target range of 70 to 100 basis points, it’s now outside the scope the bank set for itself in the consumer banking unit. That unit’s has a credit loss ratio of 100 to 150 basis points through the cycle. However, the bank said its coverage levels remain strong.
The bank expects the group’s credit loss ratio to increase towards the upper end of its target range in the coming months. Standard Bank likely expects the deterioration to come from the SA consumer banking franchise as the bank said it anticipates a further 25 basis point interest rate increase in the second half of the year.
South Africa’s repo rate has increased by 125 basis points so far this year. At 8.25%, it is now at a 14-year high. The South African Reserve Bank has hiked rates by 475 basis points since it began its tightening cycle in November 2021.
But while the consumer banking franchise is feeling the interest rate hike heat, Standard Bank said its Corporate and Investment Banking credit losses are below its through-the-cycle target range of 40 to 60 basis points.
It attributed this to “weak trading results” of several closely monitored clients of that franchise. The bank said it is carefully analysing the knock-on impact of the deterioration consumer sector on its corporate clients in SA.
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