Bloomberg - South Africa’s four biggest banks, pummeled by political
wrangling and enmeshed in the country’s economic malaise, are increasingly
shying away from their main role: lending.
“Credit extension is going
to be low for the next two to three years, unless we see some real recovery in
economic growth,” FirstRand Chief Executive Officer Johan Burger said by
phone from Johannesburg on Thursday. “South Africa’s growth prospects
remain weak and uncertain.”
Banks are reining in lending
as President Jacob Zuma’s administration struggles to reignite growth in the
continent’s most industrialized economy and cut unemployment, which has reached
a 14-year high. Business confidence is at its lowest level since 1985 in the
wake of efforts to diminish the central bank’s independence, eight failed
opposition attempts to unseat Zuma and confusion over new mining rules.
FirstRand, the continent’s
largest lender by market value, on Thursday reported net interest income growth
of 7 percent for the 12 months through June compared with an increase of 18
percent in fiscal 2016. Standard Bank Group Ltd., Barclays Africa Group Ltd.
and Nedbank Group Ltd. all published first-half results in August that showed a
similar pattern. While earnings are still increasing, helped by cost-containment
and lower impairments, it’s getting tougher to keep the momentum going.
Increases in revenue will be
muted over the next 12 months as lending slows, said Adrian Cloete, banks
analyst at PSG Wealth in Cape Town. While
the lenders aren’t expected to slump into losses, earnings growth will be “at a
lower rate than the last few years,” as improvements made in bad debts turn
into a “headwind,” meaning costs will have to be reduced, he said.
FirstRand doesn’t expect to
see improvements in impairment levels and is focusing on expanding smaller
parts of its business like insurance and investment management to diversify
earnings, the CEO said. “When you don’t have a lot of top line growth, cost
management becomes critical.”
A 25 basis-point interest
rate cut by South Africa’s
central bank in July won’t be enough to kickstart a big improvement in lending,
Burger said. That month, policy makers reduced the benchmark rate for the first
time in five years, projecting the economy will expand 0.5% in 2017.
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S&P Global Ratings and
Fitch Ratings cut the nation’s foreign-currency credit rating to junk in
April after the president fired his respected finance minister and replaced him
with someone with no financial experience. A succession battle within the
ruling party over who will succeed Zuma as president of the African National
Congress in December has also spurred infighting and hindered the delivery of
government services.
It’s only a matter of time
before local-currency debt is slashed to junk, according to Adrian Saville,
chief executive officer of Cannon Asset Managers in Johannesburg, which will further burden the
banks as their cost of funding rises