Categories: Banking NewsNews
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2023-11-28 9:51 AM

Standard Bank Witnesses Slowed Credit Impairment Amid Economic Challenges

  • Credit Impairment Slows: Standard Bank observed a slowdown in the growth of credit impairment charges amid a challenging economic environment in South Africa. Despite remaining elevated due to various factors such as balance sheet expansion and consumer strain from rapid interest rate increases, the growth rate showed a deceleration.
  • Revenue Growth Moderates: Despite a 20% increase in banking revenue, growth decelerated due to reduced demand, affordability challenges, and competitive pricing pressure, particularly affecting disbursements to retail and business clients in South Africa. Non-interest revenue growth remained moderate, driven by factors such as client acquisition, transaction volumes, pricing adjustments, and market volatility.
  • Regional Performance and Forward Outlook: Standard Bank highlighted robust earnings growth from its African regions, contributing significantly to overall earnings. With a commitment to releasing financial results for FY23 on March 14, 2024, the bank aims to provide a comprehensive outlook amid the persisting economic challenges in South Africa.
By Miriam Matoma

Amidst a challenging economic landscape in South Africa, Standard Bank has observed a deceleration in the growth of its credit impairment charges. In a comprehensive trading update for the ten months concluding on October 31, 2023, the bank reported a notable slowing in banking revenue growth. Despite this, it remained 20% higher compared to the preceding period, primarily propelled by sustained robust net interest income and non-interest revenue expansion.

The bank attributed this deceleration in revenue growth to a variety of factors. “While higher average interest rates continued to bolster the net interest margin, recent months have seen a moderation in net interest margin expansion,” explained the group. This moderation, they elaborated, stemmed from the integration of interest rate hikes witnessed in the latter half of 2022, which are now ingrained within the base figures.

Standard Bank further highlighted that diminished demand, decreased affordability, and intensified competitive pricing, notably in the South African mortgage sector, led to reduced disbursements to both retail and business clients. Consequently, this resulted in a slowdown in the growth of associated loan portfolios.

“Despite these challenges, corporate origination remained robust, particularly driven by opportunities within the energy sector,” the group emphasized. They pointed out that non-interest revenue growth was moderate to mid-range compared to the previous period, underpinned by continuous client acquisition efforts, heightened transaction volumes, annual pricing adjustments, and sustained trading revenues due to prevailing market volatility.

Addressing the prevailing economic conditions, the bank acknowledged that while the growth in credit impairment charges had tapered off, it remained elevated. This elevation, they clarified, was due to the expansion of the balance sheet, shifts in sovereign risk across African regions, provisions made for South African corporates, and the strain experienced by consumers amidst rapid escalations in interest rates.

Notably, the South African financial services sector has grappled with soaring credit impairments amid the challenging economic environment. For instance, Investec reported a substantial rise in its expected credit loss (ECL) impairment charges from £29.4 million (R665 million) in 1H23 to £46.3 million (R1.05 billion) in 1H24.

However, Standard Bank maintained a credit loss ratio for the ten months ending October 2023 that stayed below the upper threshold of the group’s target range across economic cycles. “In comparison to levels as of June 30, 2023, balance sheet provisions persist at elevated levels, and coverage remains robust,” affirmed the bank. They underscored the prudence of these measures at this stage of the economic cycle.

Additionally, the bank highlighted significant earnings growth within its African regions during the period under review. These regions contributed 44% to the group’s overall headline earnings for the same duration, signifying a positive performance despite broader economic challenges.

Looking ahead, Standard Bank announced its intent to disclose its financial results for the fiscal year 2023 on March 14, 2024, providing stakeholders with a comprehensive overview of its performance and strategies amid the persisting economic headwinds in South Africa.

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Miriam Matoma

Miriam is a freelance writer, she covers economics and government news for Rateweb. You can contact her on: Email: miriam@rateweb.co.za Twitter: @MatomaMiriam