You would never know how worrisome South Africa’s short-term economic outlook is from looking at the latest financial results from the country’s major banks.
FirstRand (owner of ETFs, WesBank and RMB), Standard Bank and Absa have released financial results in recent days, which indicate that their operations have recovered from the pandemic. In fact, their earnings and lending functions have returned to pre-pandemic levels.
The banks are also issuing an optimistic note about the economy in 2022, despite numerous warnings that South Africa is becoming a failed state. One such warning came from National Treasury Director General Dondo Mogajane, who recently said the country was showing signs of a failing state. – more common in countries like Sierra Leone and Liberia.
Mogajane, who was speaking in a post-budget discussion at Deloitte in early March, and quoted by the SchedulesLIVE, said that South Africa exhibits the characteristics of a failed state because “we don’t care about the poor and improving their lives.”
Commercial banks are not ready to draw this conclusion as they still see many promising green shoots. For starters, their outlook for economic growth in 2022 is encouraging. Absa is the latest bank to offer its outlook: it expects the economy to grow by 2.1% in 2022, in line with Treasury expectations. FirstRand and Standard Bank expect similar growth of 2.2% and 2%, respectively.
Banks are not oblivious to the challenges facing the economy as they have identified several risks that could set back growth, including the Eskom offload, Russia’s war on Ukraine and a potential fifth wave of Covid-19 infections that Absa actuaries expect to hit South Africa early on. like April.
Absa interim CEO Jason Quinn sees more downside risk than upside potential for South Africa’s economic outlook.
“Downside risks could quickly snowball. Eskom’s operational challenges and debt burden remain a major risk to growth. The fifth wave of Covid is expected to emerge as early as next month and its impact is uncertain,” Quinn said on Monday after the company released its financial results for the year to December 2021.
He said factors that could help the economy return to pre-Covid levels include the commodity boom that is expected to further support South Africa in 2022, rising exports, high production levels in the agricultural sector and government-led infrastructure investments.
Quinn also expects further investment from the private sector on the back of President Cyril Ramaphosa’s program to implement growth- and investment-friendly structural reforms.
This optimism was also peddled by Standard Bank after it recently released its financial results for the year to December 2021.
Lungisa Fuzile, CEO of Standard Bank’s operations in South Africa, said many of the bank’s corporate clients were ready to unleash investments in the telecom and energy sectors following the release of broadband spectrum and the government decision to allow private actors to produce electricity for their own needs. up to 100MW.
The bank expects an investment boom in the coming months that will help support the country’s struggling economy.
At the start of the pandemic in March 2020, banks sacrificed higher profits and incurred losses when they offered a series of relief measures to struggling consumers and businesses, including payment holidays on payment of the debt, the waiving of various bank charges and the provision of government guaranteed loans at favorable interest rates.
With life returning to normal thanks to less restrictive containment measures, banks were able to recover from the financial losses induced by the pandemic.
Absa’s after-tax profit for the year ending December 2021 tripled to R19.4 billion. Quinn d’Absa said the bank was ‘much better’ than 2019 profits. Over the same period (12 months to the end of December 2021), Standard Bank profits doubled to 28 billion rands.
Standard Bank expects to post profits above 2019 levels by the end of this year. FirstRand’s profits rose 40% to R16.7 billion in the six months to December 31. Admittedly, the reporting period of FirstRand is not comparable to that of Absa and Standard Bank.
Other measures by the banks go in the right direction.
More and more consumers are in a better financial position to service their debt, prompting banks to set aside fewer provisions for bad debts (debts not paid on time).
At Absa, credit write-downs fell 59% to just under R8.5 billion. At Standard Bank, credit impairment charges fell 52% to R9.9 billion. And at FirstRand, total impairment charges fell 57% to just over R4 billion.
Personal and business loans are growing. Loans granted to Absa customers increased by 7%, with automotive asset financing and real estate loans leading the pack. Standard Bank’s loan advances were up around 14% and FirstRand (excluding its UK business) up 6%.
All three banks expect similar levels of growth in their operations for 2022. DM/BM