The Reserve Bank has signalled that credit losses in the country’s biggest commercial lenders might have peaked after the sector set aside billions of rand to absorb skipped loan repayments from consumers reeling from the pandemic.
"Have we seen the worst of the non-performing loans? Have we seen the worst of the defaults? We probably have. We’re probably beyond the worst," Kuben Naidoo, one of the Bank’s deputy governors, said at a year-end briefing on Friday.
His comments could raise hopes for investors and executives in the country’s banks that the central bank is about to lift
a ban on dividend payouts, bonuses and share buybacks, which was put in place in exchange for the sector to dip into regulatory buffers to free up more than R300bn in lending.
But Naidoo, who is also the head of the bank supervision body, the Prudential Authority, said it was too early to tell banks to reopen dividend taps or splash out on bonuses as there might be further shutdowns to cope with a potential second wave of Covid-19 infections.
"Until we’re reasonably confident that we are out of the woods in terms of credit losses in the banking book, we’re likely to keep that guidance in place," said Naidoo.
The banking industry, dominated by Standard Bank, FirstRand, Capitec, Nedbank and Absa, set aside billions of rand to prepare for a wave of defaults from consumers who have either lost their jobs or took deep pay cuts in an economy that is set to suffer its deepest annual contraction in generations.
Even though there are signs of recovery — as shown in FirstRand’s trading statement last week that the build-up of loans that have missed repayments was marginally better than expected in the four months to end-October — the possibility of another economic shutdown amid a resurgence in Covid-19 cases in the Eastern Cape and Western Cape could yet force banks to make further provisions for credit losses.
The central bank, which has been having regular meetings about the guidance in recent months, is due to meet again at the end of January to review its stance, Naidoo said.
"If we are of the view that we’ve passed the peak, [if] we think credit losses are likely to fall with each month, we may lift the guidance. It’s not our intention to punish banks or to punish shareholders; it’s our intention to preserve capital," he said.
Naidoo defended banks against criticism that they have hardly used their temporary pass to dip into their regulatory capital buffers to keep credit flowing. Private sector credit extension slowed for the sixth straight month in September, the latest Reserve Bank data showed, logging 3.12% growth — its weakest rise since August 2010 — and calling into question whether banks are making use of looser regulations and lower interest rates.
The government also introduced a R200bn loan guarantee scheme — the centrepiece of President Cyril Ramaphosa’s R500bn plan to support the economy — that has been marked by lacklustre take-up.
But Naidoo said on the whole the industry has played an important role in cushioning the blows on households, companies and the economy.
"On the one hand you want credit to flow and on the other … you don’t want banks to be reckless. You don’t want a banking crisis. I think that on balance, banks have contributed towards a recovery rather than made the crisis worse," he said.
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