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Big Six lender Nedbank has upped provisions for bad debt in a sign of the amount of financial pressure faced by consumers.
The bank issued a voluntary trading update on Friday for the four-month period to the end of April, and while earnings show mid-teen growth and the bank is earning robust income from interest, its impairments increased compared to the prior corresponding period “given the impact of a more difficult macroeconomic environment on consumers”.
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“The primary implication for banks of these worse-than-expected macroeconomic outcomes is increased levels of consumer stress and resultant increases in credit losses, offset to some extent by higher levels of endowment income,” the bank said.
“While currently, the economic benefits of increased endowment income are greater than the increase in impairments, this benefit is narrowing and is likely to reverse with further interest rate increases,” said Nedbank.
While banks have been benefiting from the South African Reserve Bank’s (Sarb) rate hiking cycle, which has seen the repo rate increase by a combined 475bps since November 2021, consumers were been pushed into a tougher credit cycle as the cost of financing debt became more expensive.
“The higher impairments and credit loss ratio reflect the impact of higher-than-expected interest rate increases, higher levels of inflation and higher levels of load shedding on consumers,” Nedbank said.
The impact was more evident in Nedbank’s Retail and Business Banking (RBB) segment, where Stage 3 loans – those defined as loans held by consumers displaying financial distress – increased.
In its most recent financial results for FY2022, Nedbank reported a 13% increase in impairment charges.
The bank added that it expects muted headline earnings growth in the first half of its 2023 financial year, with a better performance expected for the latter half.
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