South Africa’s bad debts could hit 10% of bank lending this year, its banking association director said on Thursday, which would be the highest ever and well above the 6% seen during the 2008/9 financial crisis.
South Africa had already slipped into recession before the coronavirus pandemic struck and struggling consumers and businesses have been hit hard by the impact of the virus and the lockdown that it prompted.
“So far, we are working with the numbers of 10% NPLs (non-performing loans) which may deplete the capital buffers,” said Bongiwe Kunene, managing director of the Banking Association South Africa, adding that this estimate was based on the aggregate amount of members’ lending books seen as at risk. That stood at over 400 billion rands worth of lending, her presentation showed.
For comparison, South Africa’s NPLs ratio stood at 4.3% last month, according to the CEIC global economic data service, which says the 6% seen in 2009 is the highest ever ratio.
South Africa’s major banks, some of the biggest on the continent, have said they expect a sharp rise in bad debts and for profits to slip by at least 20% this year.
However, the lenders are generally better capitalised than international peers and say they have sufficient buffers to weather the storm. Shareholders and analysts also believe banks are unlikely to breach regulatory capital minimums.
Kunene said that, so far, banks had provided 7 billion rand in lending to 4,800 small coronavirus-hit firms under a government-backed loan scheme, and banks were discussing changes to increase take-up. It could also be extended to non-bank financial providers, she said.
Lenders could also extend the term of relief measures already offered to customers over the last three months, such as payment holidays, she said.
Lender FirstRand said separately on Thursday qualifying customers would be able to extend payment breaks by a further three months.