BUSINESS - ECONOMY
| 2013-08-05SA banks face headwinds from tough economy
STAFF REPORTER
FITCH Ratings said in a new special report on Friday that although most South African banks’ earnings enjoyed strong growth in 2012,the rate of improvement is not sustainable. This is due to headwinds from sustained low interest rates, slow GDP growth and a relatively saturated lending market, which may put pressure on credit growth in the sector’s traditional business areas, Fitch said in a statement.
“Near-term improvements may still be possible from higher margins arising from the trending change in loan book mix, with strong growth in unsecured personal lending and vehicle financing at the major banks, excluding Investec,” said Denzil De Bie, a Director in Fitch’s Financial Institutions team. “We expect the rate of unsecured lending growth to slow in light of its weak performance and potential systemic implications. Due to anaemic domestic economic conditions, we consider that longer-term growth prospects are likely to be driven by expansion into the rest of Africa for many of the major banks,” said De Bie.
Despite a weakening operating environment, South African banks’ non-performing loan (NPL) ratios have been improving since 2010 following a turn in the credit cycle. Lower NPLs have been supported by sustained low interest rates.
Fitch considers that the more easily rehabilitated home loan NPLs in the sector have been dealt with, leaving a more stubborn stock which will take longer to address. In the medium term, Fitch expects annual loan loss impairments for the major banks, excluding Investec, to stabilise. The agency expects Investec’s impairment charge ratio to remain stable at a lower level due to its different loan book composition as a specialist bank and asset manager.
Absa Bank, FirstRand Bank Limited, Nedbank Limited and The Standard Bank of South Africa were rated to have viability ratings. The agency believes that all the South African banks will be able to comply with the Basel III liquidity coverage ratio, supported by a committed facility from the South African Reserve Bank.
FITCH Ratings said in a new special report on Friday that although most South African banks’ earnings enjoyed strong growth in 2012,the rate of improvement is not sustainable. This is due to headwinds from sustained low interest rates, slow GDP growth and a relatively saturated lending market, which may put pressure on credit growth in the sector’s traditional business areas, Fitch said in a statement.
“Near-term improvements may still be possible from higher margins arising from the trending change in loan book mix, with strong growth in unsecured personal lending and vehicle financing at the major banks, excluding Investec,” said Denzil De Bie, a Director in Fitch’s Financial Institutions team. “We expect the rate of unsecured lending growth to slow in light of its weak performance and potential systemic implications. Due to anaemic domestic economic conditions, we consider that longer-term growth prospects are likely to be driven by expansion into the rest of Africa for many of the major banks,” said De Bie.
Despite a weakening operating environment, South African banks’ non-performing loan (NPL) ratios have been improving since 2010 following a turn in the credit cycle. Lower NPLs have been supported by sustained low interest rates.
Fitch considers that the more easily rehabilitated home loan NPLs in the sector have been dealt with, leaving a more stubborn stock which will take longer to address. In the medium term, Fitch expects annual loan loss impairments for the major banks, excluding Investec, to stabilise. The agency expects Investec’s impairment charge ratio to remain stable at a lower level due to its different loan book composition as a specialist bank and asset manager.
Absa Bank, FirstRand Bank Limited, Nedbank Limited and The Standard Bank of South Africa were rated to have viability ratings. The agency believes that all the South African banks will be able to comply with the Basel III liquidity coverage ratio, supported by a committed facility from the South African Reserve Bank.
