JOHANNESBURG, March 7 (Reuters) – South African lender Nedbank on Tuesday warned that consumers in Africa’s most industrialised nation were coming under pressure as higher interest rates and inflation are intensified by local economic conditions.
Mike Brown, CEO of Nedbank, among the top lenders in Africa, said the bank was seeing signs of strain in its retail business – primarily home loans and vehicles loans.
These loans “are the largest installments the customer has to pay and most of those contracts in South Africa are at floating rates”, he said.
The signs of cracks in the consumer loan book are seen as South Africans face one of the worst ever energy crises, adding to the persistent problems of inflation, high interest rates and high unemployment.
The lender’s credit loss ratio, a financial metric which shows the quality of a bank’s loan portfolio, for the year that ended Dec. 31 was at 89 basis points, up from 83 basis points in 2021.
A high credit loss ratio indicates that a bank is experiencing a high level of loan defaults, which can result in lower profitability and higher operational risk.
Nedbank is estimating its credit loss ratio will not substantially change in 2023 and its long-term target is to reach between 60 and 100 basis points, Brown said.
Its impairment charge was up 13% to 7.4 billion rand for the year driven by higher impairments in interest-rate sensitive products across its retail portfolios.
Brown called out the government for being “far too slow” to end power supply, transport and water crises in the country along with tackling endemic crime and corruption.
“Unless we are able to resolve them, we will trap South Africa in a low growth, high unemployment environment for the medium term,” he said.
Nedbank posted a 20% rise in its headline earnings per share, a profit measure, to 2,886 South African cents for the year.
It declared a dividend of 866 cents for the year and announced a share buy-back plan of 5 billion rand ($274.28 million).
($1 = 18.2297 rand)
Reporting by Promit Mukherjee; Editing by Muralikumar Anantharaman and Ed Osmond
Our Standards: The Thomson Reuters Trust Principles.
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