Absa is considering extending its debt repayment holiday, becoming the latest lender to consider additional support measures for hundreds of thousands of consumers losing their income due to a Covid-19 economic contagion.
SA's banks introduced relief measures including a three-month break on paying down debt and rescheduling of loans as a tidal wave of salary reductions and job layoffs kicked in due to the coronavirus-induced lockdown which pushed economic activity to a grinding halt.
The programmes could also put pressure on companies’ earnings but the SA Reserve Bank’s guidance in April allowing banks to dip into regulatory capital buffers to free up about R320bn in lending should cushion the blows.
Absa’s retail and business division deputy head Bongiwe Gangeni said the lender was considering extending its relief programme to six months after giving an R8.8bn breather to more than 700,000 clients in the three months to the end of June.
“Forthcoming solutions will not only target customers who opted in for the first round, but also new customers who need support now. Tailoring solutions for the specific needs of customers will underpin any further developments,” said Gangeni.
Absa will join rival Capitec in coming up with additional relief programmes after SA’s sixth largest lender by assets company said last week it would refund clients all interest accrued on their loans during the three month payment holiday.
FNB, the retail division of FirstRand, which has offered more than R5bn to about 200,000 individual customers, will also be extending its payment holiday by another three months to preselected clients.
The bank, whose Cashflow Relief Plan is discounted at prime interest rates, is also assisting customers with credit insurance policy holders for which it expects to approve R150m in credit insurance claims by the end of June, CEO of FNB Retail Raj Makanjee said.
Anton de Wet, Nedbank’s chief client officer for retail and business banking, said 228,000 clients have been assisted with debt relief across the bank’s product range including home loans, vehicle and asset finance, personal loans, loans to small and medium enterprises (SMEs) and credit cards.
“As the initial payment holidays were granted for a specified period, with that coming to a close, we have seen some clients applying for extensions. However, we are mindful that payment holidays only started gaining traction in April, as such, we will only see the true picture of this population coming through from the end of June,” De Wet said.
Supporting consumers is also in the banks’ best interests to avoid a wave of defaults that would force them to hold cash reserves to cover potential loan losses because the Bank’s Prudential Authority has said the short-term payment holidays should not necessarily mean a customer’s credit risk has significantly increased.
“This is a tough balancing act, but in the long run and in this competitive landscape, it will benefit the banks to look after their clients during this time,” said Henk Lindeque, Wealth Manager for Assured Wealth.
As the relief measures are offered at favourable terms to consumers, they would likely have an impact on income from lending but also strengthen customer loyalty.
“The flip side is that these clients could potentially avoid getting into arrears, which will reduce the credit loss ratio of the bank. This is in turn positive for earnings,” said Lindeque.
Nolwandle Mthombeni at Mergence Investment Managers said the interest refund would mean Capitec’s income interest for the three months of relief to clients will be impacted but would not cause a huge dent on the bank’s balance sheet given it had already made provision for it.
“When it comes to profitability, and when we speak to the banks specifically, at this point, the biggest mover for profit is impairments and the inability to pay, that’s the biggest risk,” Mthombeni said.
The country’s banks have particularly been struggling in SA’s stagnant economy which has seen consumer confidence fall and bad loans rising at an alarming rate. The bank’s index has fallen 39.58% so far in 2020 compared with the JSE which has dropped 6% over the same period.
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