Nedbank leery of loan default risks despite higher interest rates hauling in the bacon

The increasing interest rate environment has proven favourable for banks, with Nedbank revealing yesterday that for every 1% increase in the interest rate, it pulls in another R1.8-billion in revenue before taxes. 

Management adds that this is, of course, offset by lower growth and higher impairments as consumers take strain under steadily increasing debt repayments. 

For the six months to June 2023, the Nedbank Group saw a 10% climb in headline earnings to R7.3-billion. 

“The increase in headline earnings was underpinned by strong revenue growth and good expense management. This was partially offset by a 57% increase in the impairment charge, particularly in the retail consumer banking segment,” Nedbank said in its interim results statement on Tuesday. 

Chief executive Mike Brown noted double-digit increases in loan repayments in floating rate products such as home loans and vehicle finance, along with higher levels of growth in essential expenditure items such as groceries education and healthcare. 

“This has left many consumers with little option but to spend less on discretionary items such as clothing and home improvements, and has also led to higher levels of arrears and defaults on lending commitments,” he said.  

Commenting on the difficult operating environment, Brown said that in addition to a weak global economy and lower commodity prices, domestic economic activity continued to be negatively impacted by very high levels of load shedding, logistical constraints, higher-than-expected levels of inflation and higher-than-expected increases in interest rates.

“[Although] progress is being made in improving outcomes on the key issues of energy security, transport and logistics, and crime and corruption, [it] is slow. 

“Coupled with the potentially severe economic consequences of the US reaction to South Africa’s allegedly compromising its non-aligned stance in relation to the Russia-Ukraine conflict, [this] has added further to South Africa’s country risk premium, increasing bond yields and resulting in a deterioration in the value of the rand against foreign currencies,” he warned.

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