Nedbank expects 2020 earnings to tumble
However, SA banks have rebounded well considering the economic fallout of Covid-19
Nedbank, SA’s fourth biggest bank by assets and which counts the Public Investment Corporation (PIC) among its top shareholders, expects full-year profits to slide by up to 60% in the year to end-December 2020, largely reflecting the economic fallout of the Covid-19 pandemic.
However, in an updated trading update on Friday, the bank said its underlying financial performance was in line with the guidance provided late in December, suggesting the worst could be behind it, or at the very least, the situation did not deteriorate since its last update.
The fortunes of SA banks are closely tied to the local economy, which is estimated to have contracted by 7.2% in 2020, its steepest in a century.
Exactly a year ago since the first case of Covid-19 was officially detected in SA, the underlying prices are also yet to recover to pre-pandemic levels, though they have rallied significantly since bottoming out in May 2020.
The JSE banking stocks index, which includes Nedbank, Standard Bank, Absa and FirstRand, has rebounded 57%, according Bloomberg data.
Warwick Bam, head of research at Avior Capital Markets, said the local economy fared better than initial expectations when Covid-19 struck, leading to gradual improvement in sentiment towards the sector.
“I think everyone has been pleasantly surprised by how resilient the economy has proven to be. Nedbank is sort of unique in the sense that it has a high concentration of commercial property loans. There has been a lot of concern in recent months about the potential reduction in commercial property space and the ability of clients to meet their debt obligations. As it turned out, that did not happen — or we have not seen that happen yet.”
Over the past week, FirstRand — which is the biggest bank by market value at R307bn and was the first to report its results in the current reporting cycle — re-introduced a dividend after citing an improved operating environment, even as its interim normalised earnings dropped 20%.
“Things are going better than we thought. The recovery in the economy has been faster than expected, and we thought job losses would be worse than they have been,” CEO Alan Pullinger told Business Day after the company issued its half-year earnings report.
Standard Bank expects full-year headline earnings per share — the main profit measure in SA, which excludes exceptional items — to fall by as much as 50% as the sector grapples with pressure on consumers and businesses as a result of Covid-19.
By the market close on Friday, Nedbank had gained 0.86% at R138.26, FirstRand 2.28% to R54.84, Standard Bank 1.46% to R139.26 and Absa 1.67% to R129.61.
With Warren Thompson
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