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Johannesburg – Impairment charges for the four major banks were up 26.8% for the first half of the year, according to analysis by PwC.
At a press briefing on Wednesday the PwC Africa team shared on its report South Africa Major Banks Analysis: Getting the balance right. It analysed the results of South Africa’s major banking groups for the six months ended 30 June 2016. These include Barclays Africa Group Limited, FirstRand, Nedbank and Standard Bank.
“Underlying pressure in the economy is starting to come through in impairments,” said Johannes Grosskopf, financial services industry leader for PwC Africa. Compared to previous periods, impairment charges increased significantly. For the first half of 2016 they were up to R17.2bn compared to R13.6bn in 2015.
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Historically, there are lower impairments in better macroeconomic environments, said Costa Natsas, banking and capital markets leader in South Africa. Credit stresses in both corporate and retail sectors impacted impairment levels.
Essentially, the portfolio impairment charge increased 168.3% against the first half of 2015 to R2.5bn. Specific impairment charge increased 16.6% against the first half of 2015 to R14.8bn.
Corporate banking franchises particularly those hardest hit by the macro-economic environment, such as oil, gas and power and infrastructure sectors, were impacted.
In retail, consumers faced increasing financial pressures to meet instalments. Impairments by card debtors were up 2.7% to R109 072 in the first half of 2016, compared to the same period in 2015. Mortgage loans were up 2.5% to R894 587 in the first half of 2016, compared to the same period in 2015.
Impairments were up 26.8%
There had been a lag in the impact of the higher interest rates until recently, explained Natsas. Consumers had previously used up reserves to make payments before the macro-economic effects caught up and influenced results, he said.
The increase in impairment charges was accompanied by the increase in Non-Performing Loans (NPLs), said Natsas. A loan is classified as non-performing when customers miss a number of payments, depending on a criteria set by each bank, explained Grosskopf. NPLs by the major banks increased 14.7% compared to the first half of 2015. Retail NPLs make up the majority, 74% of NPLs.
Banks have made provision against NPLs, said Grosskopf, with coverage at 76%. Banks price in impairments in interest income, explained Natsas.
The major banks’ combined loans and advances grew 6.5% compared to the same period in 2015 and they were up 1.3% compared to the second half of 2015.
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