Standard Bank, Africa’s largest bank by assets, says it will take years for losses from bad debts to recover to the group’s targeted range, indicating the mountain the country’s banks still have to climb to put the pandemic behind them.
Standard Bank group CFO Arno Daehnke said on an investor call on Monday accompanying the trading update to end-November that he expects it will "take a few years" for the group to return to its targeted band for bad debt expenses.
Standard Bank has a through-the-cycle credit loss ratio range between 70 basis points and 100 basis points (0.7% to 1%). The ratio, which measures the losses as a percentage of total credit advances, jumped to almost 169 basis points in the first half from 76 at the same time in 2019.
Daehnke’s comments come days after one of the deputy governors of the Reserve Bank, Kuben Naidoo, signalled that losses from skipped loan repayments in the industry may have peaked but warned of the possibility of a second wave of defaults amid resurgent Covid-19 cases in parts of the country and job losses.
Standard Bank did not provide any further guidance on expected earnings for the full year to end-December, other than to say they would decrease by more than 20% versus the prior corresponding period.
The bank says it was experiencing elevated risks it referred to as "pockets of pressure" emanating from tranches of loans that have ceased to provide instalment relief. These mostly pertain to its unsecured lending book and specifically credit cards.
"In addition, a continued increase in retrenchments has triggered additional stage 3 provisions," the group stated. Stage 3 provisions refer to bad debt provisions for loans that have exceeded the 90-day non-payment threshold.
Although the absolute size of Standard Bank’s client relief portfolio for its local personal and business banking unit declined to R47bn by October 31 2020 from R61bn at end-September and R107bn at end-June, it still accounted for 8% of the division’s entire portfolio.
Standard Bank increased its provisions for bad debts on its personal and business banking SA client relief portfolio from 2.5% at end-June to 4% at end-October. For the personal and business banking SA portfolio as a whole, bad debt provisions increased to 5.5% at end-October, from 5.3% at end-June.
"I think it’s understandable given the payment holidays that have been extended to clients and the pain still being experienced due to job losses and weak economic growth," said Patrice Rassou, chief investment officer at Ashburton Investments. "It’s not a big spike, particularly in the context of Covid-19."
In the rest of Africa, Standard Bank’s client relief portfolio on its personal and business banking Africa regions business declined to R4bn at end-October, from R11bn at end-June. However, total bad debt provision on this segment of the business increased to 3.9% at end-October, from 2.6% at end-June.
"While we have seen a decline in the total balance outstanding, we have seen an uptick in balances in stage 2 and 3 relative to June 30 2020 and associated provisions," it said.
The bank said requests for relief from its corporate and investment banking business had tapered off.
While total relief to the tune of R78bn was granted to corporate and investment banking clients, actual relief totalled only R24bn at end-October as much of the relief remained undrawn. Nevertheless, that was up from R21bn at end-June.
"Across most of the countries in which the group operates in Sub-Saharan Africa, infection rates and lockdowns have moderated and economic activity has recovered," said Standard Bank. "We do note, however, an unfortunate increase in infections in Kenya, SA and Uganda. The likelihood of further waves of infection in our countries of operation remains high."
Standard Bank, which is scheduled to release its annual results to end-December on March 11, said the outlook for credit impairment charges beyond its 2020 fiscal year remained "very uncertain".
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