South Africa’s economic recovery, following the knock it took during the hard Covid-19 lockdowns, is expected to accelerate from its prediction of 3.4% to 4.4% for 2021, says Nedbank.
The bank, in a trading update for the four months to end April, says that though the economic environment for the period remained challenging because of the lockdowns, power outages, low levels of consumer and businesses confidence, and uncertain job prospects, there are some signs the economy is turning for the better.
“On the positive side, 55-year low interest rates continued to support credit-active consumers and a global commodity boom has been beneficial to exporters,” the bank notes.
Judging from the turnover coming through the bank’s point of sale devices and digital channels, the recovery is well on track as turnover levels in the period are up 22% when compared to the four months to end April 2020.
Even so, despite the improving economic outlook, the four months are being measured against a period that economically was very weak, as the country had entered a recession.
Nedbank expects real GDP to have grown 0.4% quarter-on-quarter for the first quarter of 2021.
Rate cut boost
It points out that the historically low interest rates have prompted different reactions from its customers. It’s corporate clients, for instance, are “using excess liquidity to repay committed facilities”.
By comparison, its retail and business banking clients – individuals and businesses with an annual turnover of less than R750 million – are using the lower interest rates to take out more secured and unsecured loans.
Nedbank says the 300 basis points (bps) cut in the interest rate also helped its retail and business banking customers service their loans. This in turn helped the bank as its impairments for the period “declined substantially”.
“The group’s credit loss ratio (CLR) was below the bottom end of the 110 bps to 130 bps guidance we provided for the full year 2021, and is well below management expectations for the period.”
It says while this is an encouraging start to the year, it is still too early to reduce its full-year guidance for the CLR.
On the corporate side, there was also an improvement in impairments. This, it says, was a result of “improving IFRS 9 macroeconomic forecasts and better client operating performance.”
Though Nedbank did not give an earnings outlook in this trading update, it said in March that headline earnings per share (Heps) and basic earnings per share (EPS) for the six-month period to end June was expected to increase by more than 20%.
“A further trading statement will be issued to provide more specific guidance once there is reasonable certainty regarding the extent of the increase in earnings and the relevant Heps and EPS ranges”.
Its results for the half year will be released on or around August 11.