Banks in South Africa are Bracing for the worst, but Wishing it Doesn’t Happen

Bad debts are looming in the South African banking sector, even as stakeholders have made provisions for them whilst hoping that they will not materialise.

A Bloomberg report noted that South African banks have put aside enough cash to “manage the potential torrent of bad debt” that is expected. The money will also help to cushion the adverse effects of the expected bad debts on the bank’s earnings in the coming months.

But then again, the banks are hoping that they will eventually not have to grapple with this problem. As you may well know, bad debts are non-performing loans which is caused by customers’ failure/inability to repay credit facilities previously extended to them.

Across Africa’s banking sector and beyond, there has been a significant rise in non-performing loans this year due to the economic fallout of the Coronavirus pandemic. In Nigeria, for instance, banks’ non-performing loans rose to a whooping N1.21 trillion in H1 2020, according to Nairametrics. In the meantime, Kenya’s non-performing loans are projected to rise by almost 14% by the end of Q4 2020.

Back to South Africa for a moment; the country’s Reserve Bank said the likes of Nedbank Group Limited, Absa Group Limited, FirstRand Limited, and Standard Bank Group Limited, all reported varying degrees of reductions in their profits during half-year 2020. The performance is said to be worse than what was experienced during the global financial crisis. The banks’ return on equity also declined by 9.2% from 15.4% recorded during the comparable period of 2019. All of these were blamed on the COVID-19 pandemic.

PwC also reported that the above-named banks, which are the biggest banks in South Africa, saw their charges soaring by a combined 130% in the first half of this year.