Standard Bank says its customers are slowly coming off the support it has provided them to cope with the fallout from the Covid-19 crisis.
The bank said the Personal & Business Banking South Africa (PBB SA) client relief portfolio had declined from R107 billion as at June 30, 2020 to September 30, 2020 on R61 billion, in a statement released on Tuesday.
“Pleasingly, as economies have opened, our clients have required less support, and many have resumed their payments. All requests for additional relief and/or extensions have been subject to appropriate client-specific risk assessments,” it notes.
It also said there were some signs of an economic recovery. “In South Africa, PBB account turnover levels recovered to/or around pre-Covid levels (personal accounts slightly above and business accounts slightly below).”
The bank said that historically low interest rates have boosted the housing market. “In the third quarter, PBB disbursements continued to recover from lows in April 2020. In South Africa, attractive house prices and lower interest rates supported sales activity and in turn, mortgage disbursements in the quarter. Period-on-period, growth in PBB’s unsecured portfolios continued to outpace that of the secured portfolios.”
The lower interest rates may have increased demand for mortgages but it’s also putting Standard Bank’s earnings under pressure.
“The significant interest rate cuts year to date are an increasing drag on margins and net interest income (NII).”
In South Africa, we do not expect any further interest rate cuts this year (after cumulative cuts of 300 basis points to the end of July 2020). We expect a 25 basis point increase in 2021.”
It expects the interest rate cut to have a far-reaching impact on its earnings.
“In light of the NII and activity-related fee pressures, we expect negative jaws for the 2020 financial year. Pre-provision operating profit growth was marginally negative period on period.”
It warns that the road ahead was still difficult.
“In South Africa, our growth forecast remains unchanged from those provided at our 2020 interim results on 20 August 2020; real GDP is expected to contract by 8.5% in 2020 and expand by 4.5% in 2021.”
The bank does not expect things to improve anytime soon.
“Looking forward, the Covid-19 pandemic, together with global economic weakness, elevated uncertainty and depressed sentiment, is expected to negatively impact employment, incomes and equality globally. Emerging markets, including sub-Saharan Africa, face high external debt and a dependency on sectors most exposed to the pandemic. They risk being disproportionately impacted, particularly in terms of an increase in poverty and inequality.”