Bad loan write-offs may exceed that of 2008 crisis, Standard Bank warns

Standard Bank has warned the economic toll of the Covid-19 pandemic is slowly starting to emerge, saying the rate of writing off bad loans may exceed that of 2008 financial crisis.

Credit loss ratios, which represent the costs associated with writing off bad loans as a percentage of the average loan book of a financial institution, may exceed 1.6% the group said, as it warned profits for its six months to end-June would likely fall by more than a fifth.

By May 28, the group's personal and business divisions had provided R92bn in relief to individuals and businesses in SA across 285,000 accounts, it said, while in its African regions this stood at R11bn across 14,000 accounts.

Lockdowns negatively affected sales, disbursements and transaction activity levels, the group said, and while there had been an improvement in May, it was below pre-lockdown levels.

The closure in April of deeds offices and dealerships halted mortgage disbursements and resulted in a more than 70% decline in vehicle and asset finances disbursements compared with March.

ATM and branch volumes were down 38% and 61% respectively, the group said.

“While there has been an improvement in activity levels during the course of May, they remain below those seen before the lockdown,” Standard Bank said.

The group said it is unable to provide guidance for its year to end-December, though headline earnings per share (Heps) to end-June is likely to fall more than 20%.

“If the pandemic-related impacts are deeper or more sustained than currently expected, or government actions are not effective, the group’s results could vary meaningfully,” the statement reads. “The group is reviewing the group’s medium-term financial targets and will provide an update as and when able to do so.”

In morning trade on Monday Standard Bank’s share price was down 3.04% to R98.52, putting it on track for its worst one-day performance in more than two weeks.