Already staring a recession in the face, the South African economy struggled immensely when the strict Covid-19 lockdown restrictions were implemented. Many South Africans lost their income in the first few months. As businesses shut down, thousands of jobs were lost. South Africans who were fortunate enough to keep their jobs during this time are still struggling, with many relying on expensive loans and debt just to make it through the month. Consumer debt woes are weighing heavily on SA banks, warns leading financial services analyst Kokkie Kooyman. – Jarryd Neves
By Jarryd Neves
In South Africa, many individuals face a stark reality. With an unemployment crisis, people are lucky enough if they have a steady monthly income. Many – just in order to survive – find themselves taking out expensive loans and creating debt to fund basic living expenses.
___STEADY_PAYWALL___
Read also: SA is in debt-trap twilight zone, warns Futuregrowth
A survey, of over 500 individuals, found that plenty of South Africans are having to work second jobs, and depend on pricey loans to finance the basics, such as food, unforeseen emergency bills and even repairs to vehicles.
About 11% of those surveyed admitted that they spent more than half of their salaries paying off short-term loans and debt, and four out of every 10 contribute around a fifth of their income to paying off their debt. Nearly half the respondents said that they had to find a second revenue stream to make ends meet.
According to DebtBusters, a staggering 1,6m South Africans will now repay an additional R20,7bn, as a result of the payment breaks offered by banks and other financial institutions during the April to June period.
Read also: Lockdown: How SA flattened its economy instead of the curve – Johannes Wessels
It’s not just the middle-class and those on the breadline who have sleepless nights over unpaid debts. Top earners, such as medical and legal professionals, are beginning to feel the pinch too.
According to the CEO of Debt Rescue, Neil Roets, a worrying number of high-earning professionals are reaching out and asking for help. “We are now seeing the top earners on the ladder, such as doctors, lawyers and corporate executive, knocking on our door to place them under debt review.”
Bank debts: profit warnings
But what do these high debt rates mean for the JSE-listed banks? As the economy tries to take various industries down with it, the banking sector has taken an almighty blow, with Bloomberg reporting that some banks (such as Absa) are reporting expected profit declines as severe as 85%.
The 29-year old banking group is expected to release its results on the 24th August. According to Bloomberg, First Rand Ltd. said “earnings excluding accounting adjustment probably fell as much as much as 45% in the twelve months through June.” Other top financial institutions, such as Nedbank Group Ltd. and Capitec Bank Holdings have estimated profit losses to be “more than 20% lower” and a decline of “at least 70% for the six months through August”, respectively.
Read also: Standard Bank profits plunge, as much as 50%, as banks prepare for earnings slump
However, what about South Africa’s biggest bank, Standard Bank Group Ltd? Its results are expected shortly – August 20th. The continents biggest lender (by assets) has expected a profit shortfall of between 3% and 50%, according to Bloomberg.
In the BizNews Rational Radio webinar this week, Denker Capital executive director Kokkie Kooyman – a respected bank analyst – had this to say about the current outlook on the South African banking sector:
“Globally, banks have all bounced back about 30% – depending on the bank. Some only 20% or 15%. Our banks are still exactly where they were at the end of March. Basically, our market is taking a very dim view of the South African economy’s ability to grow hereafter. In the rest of the world, guys are saying ‘I hear what you’re saying – big provisions’.
“It will be a non-repeat, as provisions might not even become bad debts as economies recover. But here in South Africa, I think you might actually need more provisions. That’s really what our banks are going to have to explain as to what they see in the next six months and 2021”.
