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Johannesburg - The cutback in credit extension by the large commercial banks is turning out to be an expensive exercise for them.
The latest quarterly survey by Ernst & Young (E&Y) shows that profit and confidence in this sector fell sharply in the fourth quarter.
For the eighth consecutive quarter, confidence fell - from 41 index points to 34, the lowest level since 2002 when the surveys began.
E&Y's Emilio Pera says the weaker confidence is being driven by the shrinking demand for credit, a trend that started at the beginning of 2008.
The survey shows that banks are maintaining a slightly more accessible attitude to lending is attributed to bad-debt levels, which have apparently reached a peak. Credit losses are still rising, but at the most moderate rate in two years.
Banks' interest income is under pressure, because they are lending less.
Falling income on this front was, until recently, offset by higher costs or non-interest income. But since volumes are stable, or even falling, this alternative income source is also under pressure, because, on account of job losses and existing high debt levels, fewer and fewer consumers are using bank services.
The downturn in retail activities increased significantly in sectors like treasury, specialised financing, private equity, corporate financing and project financing in the fourth quarter.
Harsher conditions in these sectors have been putting pressure on the confidence index for even longer than investment bank activities, where pressure only started increasing with the worldwide financial crisis at the end of 2008.
Pera doesn't see much relief for banks. Lower interest rates have not yet brought about a noticeable improvement in consumer spending.
Unemployment in particular is problematic for banks' ambitious plans to grow in the lower-income market.
On the other hand, banks' bad-debt levels are improving, which could lead to larger loans in the long term. By the end of the year, that will probably start helping to boost the banks' profit levels.
- Sake24.com
For more business news in Afrikaans, go to Sake24.