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Despite recovery, Standard Bank remains cautious

Bank won’t pay a dividend.
Standard Bank's credit impairment outlook for beyond 2020 is very uncertain. Image: Mike Hutchings, Reuters

Despite an improvement in its credit loss ratio for the ten months to October 31, 2020, Standard Bank says its credit impairment outlook for beyond the end of the 2020 financial year “remains very uncertain.”

This was in spite of its credit loss ratio, a measure of the lender’s losses as a percentage of total average advances, for the ten months coming in below that of the 169 bps for its half-year to end June.

Read: Standard Bank’s trading statement for the 12 months to December 31 ,2020

The previous half-year’s credit loss ratio was 76 bps.

The knock-on effect of this caution is that it did not give any guidance on whether it will pay dividends for the full year to end December in June.

Standard Bank

Resurgence

This wariness at the bank has been compounded by the uncertainty brought on by the resurgence of new Covid-19 infections across Europe, the US and parts of South Africa, said Standard Bank financial director Arno Daehnke, in a conference call on Monday.

“The current surge in infections and ensuing lockdowns in the Northern Hemisphere are a concern. While the broader impact thereof on the global economy, disruptions to trade and the potential knock-on impact on Africa is unclear, it is expected to be milder than that seen in [the second quarter of 2020].”

The Covid-19 crisis, along with the accompanying hard lockdown has put enormous pressure on the banking sector, as it has not only had to deal with clients’ loss of income but also to provide them with support in terms of payment holidays and support loans.

The impact of the ending of the Unemployment Insurance Fund’s Covid-19 Temporary Employer/Employee Relief Scheme (Ters) benefits is also weighing on its outlook.

“It is always something we are watching closely. And it’s something we want to manage,” said Standard Bank personal and business banking SA head Thabani Ndwandwe.

Standard Bank, Africa’s largest bank by assets, expects headline earnings per share (Heps) and earnings per share (EPS) for the year to be more than 20% lower than the Heps of 1 766.7 cents and the EPS of 1 593.5 cents it earned last year.

These projected declines follow Heps tracing down 44% to 474 cents and basic EPS being down 71% to 236.7 cents at the half year.

Recovery

The reopening of the economy has helped it but the bank says it still needs some time to see how deep the recovery is across all sectors of the economy.

Standard Bank Corporate and Investment Banking SA CFO Brooks Mparutsa said in SA, there has been a slight increase in activity in the hospitality sector, as well as upturns in hospitals and healthcare.

“Industrials in South Africa … is showing recovery, where we were significantly more worried as at the half year,” Mparutsa said.

The recovery can also be seen in fewer people requiring relief from the bank. In the half-year to end June, its relief portfolio was R107 billion. By September 30, it was down to R61 billion and now is now down to R47 billion.

Of the relief portfolio, 80% is secured through mortgages and car loans.

Pockets of pressure

Despite the recovery, consumers are still taking strain. The bank said it picked up “pockets of pressure”, particularly within personal unsecured lending.

Ndwandwe said the bank has moved past the phase where it was looking to provide immediate relief, to one where it is looking for long-term solutions for customers who can’t pay bank their loans.

“If you continue with payment holidays, it can start looking like you are kicking the can down the road. And we have no intentions of kicking the can down the road.”

This has seen it approaching some unemployed customers to help sell their assets for them.

Ndwandwe said the bank is careful about this, as it doesn’t want to get into a position where it “overreacts” to the difficulty customers are going through. He pointed to how people in certain job roles tend to find employment quickly and this is taken into account.

Long slog

On the whole, it will take a long time until the bank recovers to where it was before the Covid crisis hit. When Daehnke was asked how he saw credit loss ratios evolving over the next two to three years, he did not mince his words:

“We do see a longer-term period for our credit loss ratios is to normalise back to the 70 to 100 basis point range. So, this will take a few years to get there.”

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No dividend = I sold my shares today.

Last time this Bank said that they could pay a dividend, they had money to pay dividends but government advised not to.

Now that government allows payment of dividends from January 2021, now the bank will not pay a dividend?

If I deposited my life savings at the bank, and the bank made a loan to SAA, Eskom or Luthuli House by investing in government bonds, and SAA, Eskom, Denel, PetroSA, The Land Bank, Sanral, Transnet or any SOE goes into default, where is my money then?

Look at the financial crisis of 2008/2009. Many Banks in the US went bust.

When a bank goes bankrupt you lose everything.

Even if you buy kruggerands through a bank, if the bank goes bust, you lose your gold also.

Thank you. You confirmed my suspicion and worst fear. The US Reserve Bank offers explicit deposit insurance up to a maximum of $100 000. The SARB does not offer deposit insurance explicitly, but they did refund the VBS depositors to a maximum of R100 000. The saver who has more than R100 000 on deposit in a local bank, runs the risk that he will stand in line with the rest of the creditors in case of a bank run.

Now. my question is this – If I invested in government bonds via my bank account, and there happens to be a run on the bank, will my investment be safe? The government, and not the bank, is the ultimate guarantor of the bond. The bank is an intermediary in this case and not a counterparty. Can I protect my bank deposit against a bank run by purchasing bonds in that account?

There is a limit that governments guarantee fixed deposits or savings.

If you are very smart and foresee a financial crash like in 2008, you spread your savings between a few banks.

I was not aware that the SARB did the same.

I wonder how much was recovered from the VBS looters?

Starting at the Guptas would be a good bet.

Surely if investors do not get dividends then neither should management get any bonuses?

If they don’t have enough profit to pay a dividend, then surely they don’t have enough profit to pay a bonus either? If they decide to pay bonuses to management, it implies that the shareholder will be funding that bonus straight from his dividend. This sounds like coerced philanthropy to me.

End of comments.

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