adminThe recent increases in provisions for bad debt by South Africa’s big banks signal the menacing effects of higher interest rates on consumers and the onset of a tougher phase of the credit cycle.
While the banks have been raking in good profits on the back of lending and higher interest rates, consumers have been buckling under the pressure of cumulative repo rate hikes since November 2021, when the South African Reserve Bank (Sarb) turned hawkish to rein in spiralling inflation.
The hiking cycle has seen a cumulative 425 basis points (bps) increase in the repo rate since then, making it more expensive for consumers to finance their debt. Most of the pressure is being felt by those with longer-term debt such as home loans and vehicle finance.
Consumers are under more pressure than corporates, says Harry Botha, a banking sector research analyst at Anchor Stockbrokers, noting that the company’s guidance for credit impairment and credit charges don’t “really sound alarm bells”.
“There are some signs of [affordability] pressures developing for consumers, and that’s probably the worry going into 2023,” he adds.
Nedbank, in its most recent financial results for 2022, reported a 13 percent increase in impairment charges.
Responding to Moneyweb, the bank said while it does not expect the impact of the higher interest rates to be severe, it has begun to see early signs of consumers struggling to make repayments on their home loans.
“Households have generally been resilient, but there are early signs of stress emerging as a result of higher interest rates and inflation,” Nedbank added.-Moneyweb
In its 2022 financial results, the bank noted that Sarb’s policy tightening has caused an uptick in unsecured lending but warned that credit quality was being impacted by rate sensitive products like home loans and vehicle financing.
This week, Capitec became the latest bank to raise its impairment charges, which surged by a staggering 80 percent to R6.3 billion. The bank is now SA’s largest lender by customers and serves a third of the South African population.
Capitec said the impact of higher interest rates has led to a 20% increase in the value of its average home loan debit orders, adding that the number of customers rolling into arrears and going into debt review has increased.
For FirstRand-owned FNB, the inflationary pressures have resulted the bank focusing on its low- and medium-risk customers with the capacity to take up credit. These are customers with the “appropriate affordability buffers in place for further interest rate increases,” it said –Moneyweb
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