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South Africa’s four major banks could take a R53 billion knock due to credit losses

Written by on April 17, 2024

South Africa’s four major banks are projected to lose around R53 billion due to non-performing loans.

This is due to the fact that their credit loss ratios are expected to rise in 2024.

The four banks include Absa, FirstRand, Nedbank, and Standard Bank.

According to a report by PricewaterhouseCoopers (PwC), the banks achieved an average credit loss ratio of 102 basis points (bps) in 2023.

The Major Banks Analysis report said that this increased from 82bps in 2022.

The four banks have R5.3 trillion in loans and the credit loss ratio of 1% means the banks could take a R53 billion knock in 2024.

PwC noted the interrelationship between interest rates and impairments where higher interest rates eventually manifest into higher impairments.

“Higher interest rates on the back of elevated inflation levels placed pressure on South African households and businesses as the combination of larger repayments, less disposable income and higher debt-to-income ratios weighed on both customer balance sheets and sentiment.

“This combination of events increased the cost of risk, particularly in home loans, vehicle and asset finance and personal loan portfolios. Consumer-facing corporate sectors and sovereign risks in certain territories amplified credit risks across portfolios,” PwC explained.

PwC said the combined credit loss ratio (the income statement impairment charge divided by average advances) increased to the top end of their through the cycle ranges at 102bps (82bps in 2022) as the income statement credit risk charge increased by 26.6% (from R42.5 billion in 2022 to R53.8 billion in 2023).

Total non-performing loans increased by 21%, comprising 5.4% of gross loans and advances.

Headline earnings were high in 2023

Despite the multi-billion rand losses due to the credit loss ratio, the four banks have increased their earnings by 13.8% in 2023.

The report said that the banks combined headline earnings reached a new record annual level of R113.2 billion.

In 2022, the combined earnings was R99.5 billion.

The banks tax bill

PwC also noted that the four banks paid the South African Revenue Service (Sars) around R37.7 billion in direct taxes to government in 2023.

The report showed:

– Standard Bank paid R12.72 billion in direct taxes

– FirstRand paid R12.59 billion in direct taxes

– Absa paid R7.98 billion in direct taxes

– Nedbank paid R4.43 billion in direct taxes


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