Nedbank expects the Reserve Bank to cut interest rates by at least 50 basis points (bps) in the final four months of this year, bringing much-needed relief to embattled consumers, many of whom are mired in debt.
In an assessment of its performance in the first four months of this year, the lender said the business environment remained challenging despite a marked decline in load-shedding and an improvement in logistics issues at the country’s ports.
Nedbank said weak economic activity was due to geopolitical uncertainty, high interest rates and inflation, adding that household finances were not in good shape.
“Household finances remained under pressure as real incomes contracted and job prospects remained muted. Corporate activity was also weak, impacted by the uncertain political and economic environment,” it said.
“Economic activity is expected to remain weak before gradually improving into the second half of the year as inflation reduces further, potentially enabling the Reserve Bank’s monetary policy committee to start cutting interest rates.
“As a result, the Nedbank Group economic unit revised its SA GDP growth forecast for 2024 from 1% (February 2024) to 0.9%. Inflation is expected to end 2024 at around 4.7% and as a result we now forecast two interest rate cuts of 25 bps each during the final four months of 2024, with the prime interest rate at 11.25% at the end of the year.”
The monetary policy committee last week kept the repo rate steady at 8.25% but flagged sticky inflation as a hindrance to cuts any time soon.
In his speech at the conclusion of the committee’s meeting, governor Lesetja Kganyago said the Bank now expected inflation to return to the midpoint of its 3%-6% target band in the second quarter of 2025.
The prime lending rate has risen 475 bps since November 2021 to 11.75%, which is 200 bps higher than a few months before the Covid-19 pandemic erupted. This resulted in a hefty 42% increase in monthly repayments for a 20-year home loan compared with November 2021 — bringing much distress to consumers servicing their mortgages.
Business Day reported in May that SA’s biggest four banks have about R98bn in underperforming home loans, reflecting the effect of high interest rates on consumers.
More consumers have also opted for debt review. However, Capitec, the country’s largest bank by customer numbers, has warned of debt counsellors placing consumers under debt review despite their financial position not warranting such action.
Nedbank said the fallout from the tough macroeconomic environment for its clients and therefore its business is evident in continued elevated levels of consumer strain and slowing credit and transactional revenue growth across both wholesale and retail portfolios.
The lender said its performance in the four months to end-April reflected headline earnings growth of around mid-single digits. It said this was supported by growth in retail and business banking, albeit from a low base, and solid growth in corporate and investment banking.
Still, a decline in headline earnings in Nedbank Wealth and Nedbank African regions partially offset growth in the retail and corporate units.
The lender reported an improvement in credit impairment in the four months under review, compared with the previous period. Stage 3 loans, which indicate a non-performing loan in the corporate business, declined R7bn “since December 2023 post the resolution of a few high-profile exposures”.
Nedbank expects stronger credit advances in the second half of this year from the first half “as lower interest rates and inflation start benefiting retail credit growth and as wholesale clients start drawing down on approved and committed renewable energy deals”.
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