Nedbank has revised its 2022 growth forecast for SA’s GDP slightly downwards to 1.6%, and is also eyeing an acceleration of consumer inflation to 6.1% as the war in Ukraine, load-shedding, Covid-19 restrictions and the floods in KwaZulu-Natal push up energy and food costs.
Global economic growth is also expected to “slow materially” as the Federal Reserve in the US, the Reserve Bank and other central banks tighten lending conditions by hiking interest rates, Nedbank said in a trading update on Friday.
“The ongoing power outages, damage from the floods in KwaZulu-Natal and an uptick in Covid-19 cases are likely to weigh on confidence and also dampen economic activity, particularly in the second quarter of 2022,” the bank said.
The Reserve Bank downgraded its GDP growth forecast for 2022 from 2% to 1.7% when it announced the repo rate increase of 50 basis points to 4.75% earlier in May.
It upgraded its inflation forecast slightly to 5.9% for the year, just below the upper end of its target range, and said it will then slow to an average 5% in 2023 and 4.7% in 2024.
Nedbank expects SA’s prime interest rate to be 9.25% by the end of 2022, from its earlier prediction of 8.5%.
Nedbank said the bank and its clients were helped by economic activity, moderate credit growth and slightly higher interest rates in the first few months of the year.
This changed with the start of the war in Ukraine in March and other global issues, which the bank expects will hamper SA’s export volumes as global growth slows.
“The country’s terms of trade should hold up relatively well as elevated gold and metal prices, responsible for about 50% of SA’s exports, should help compensate for the surge in global oil and food prices,” Nedbank said.
Nedbank also said its financial performance for the first four months to end-April 2022 showed “robust” net interest income and non-interest revenue growth compared with the same period the previous year. Net interest income for the period was in the “high single digits” compared with the corresponding period in 2021, driven by low-to-mid single-digit loan growth and an ongoing increase in the group’s net interest margin.
“All key financial metrics are currently performing in line with achieving the 2022 full-year financial guidance provided by management in March 2022,” Nedbank said.
Deposit growth remained ahead of advances growth and household transactional deposit market share grew 0.2% to 13.7%. While Nedbank said it had exhibited “good expense control” for the first four months of 2022, growth in costs was slightly above mid-single digits.
Nedbank’s common equity tier 1 (CET) capital adequacy ratio was 12.7% at end-March 2022, up from 11.3% a year before and above the upper end of the board-approved target range of 11%-12%. The group’s liquidity coverage ratio was also at 134% while its net stable funding ratio was 118%.
The bank said it had no direct exposure to Ukraine and Russia while its indirect exposure was described as “insignificant”. With Garth Theunissen
Update: May 29 2022
This article has been updated with new information throughout.
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