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Johannesburg - South African banks face an increase in bad loans due to rising interest rates and the prevalence of unsecured lending, ratings agency Moody's said on Wednesday.
The central bank hiked its repo rate by 50 basis points to 5.5% in January and analysts polled by Reuters forecast the benchmark rate to rise again to 6.5% in 2015.
That will put more pressure on households whose debt levels are equal to almost three-quarters of their disposable incomes.
Moody's forecast banks' non-performing loans to rise to 4.2% of gross loans in 2014-15 from 3.7% at the end of 2013.
One small lender, African Bank, is already showing the strain. Last week, the country's biggest provider of unsecured loans warned it would swing to a first-half loss because of higher-than-expected bad debt.
Higher interest rates and other sources of income such as fees and commissions will buttress revenue and net interest margins - a measure of how much money banks make from their loans.
But profitability will come under pressure as the lenders have to make more provisions for souring debt, Moody's said.
South Africa's number four lender Nedbank has said its net interest income - the difference between interest received on loans and paid out on deposits - was up nearly 8.7% in the first quarter.
South Africa's five biggest banks reported a decline in impaired loans, which fell to R84bn in December 2013, or 3.1% of total loans, according to the central bank.
But impaired credit is a bigger problem at smaller banks, ballooning to a peak of R24bn, or 17.4% of total loans, in July 2013.
Unsecured lending accounts for almost 12% of total gross credit exposure in the banking sector, according to central bank data.
The overall outlook for South African banks remains negative, Moody's said, due to subdued economic growth, weak consumption and protracted labour unrest.
- Fin24
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The central bank hiked its repo rate by 50 basis points to 5.5% in January and analysts polled by Reuters forecast the benchmark rate to rise again to 6.5% in 2015.
That will put more pressure on households whose debt levels are equal to almost three-quarters of their disposable incomes.
Moody's forecast banks' non-performing loans to rise to 4.2% of gross loans in 2014-15 from 3.7% at the end of 2013.
One small lender, African Bank, is already showing the strain. Last week, the country's biggest provider of unsecured loans warned it would swing to a first-half loss because of higher-than-expected bad debt.
Higher interest rates and other sources of income such as fees and commissions will buttress revenue and net interest margins - a measure of how much money banks make from their loans.
But profitability will come under pressure as the lenders have to make more provisions for souring debt, Moody's said.
South Africa's number four lender Nedbank has said its net interest income - the difference between interest received on loans and paid out on deposits - was up nearly 8.7% in the first quarter.
South Africa's five biggest banks reported a decline in impaired loans, which fell to R84bn in December 2013, or 3.1% of total loans, according to the central bank.
But impaired credit is a bigger problem at smaller banks, ballooning to a peak of R24bn, or 17.4% of total loans, in July 2013.
Unsecured lending accounts for almost 12% of total gross credit exposure in the banking sector, according to central bank data.
The overall outlook for South African banks remains negative, Moody's said, due to subdued economic growth, weak consumption and protracted labour unrest.
- Fin24
Help us help you by taking our second annual Debt survey and you could win R3 000, or add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.
