Standard Bank says two-pot payouts are not reducing debt

Standard Bank, Africa’s largest bank by assets, says early data suggests that consumers are not cashing in their “two-pot” benefits to pay down debt as initially hoped.

The “Big Blue”, as the lender is known due to the size of its balance sheet, said while it would have a full picture when it released its full-year results, it had yet to see a material impact on its non-performing loans (NPLs) since SA’s largest retirement reform kicked off at the beginning of September.

Data from the SA Revenue Service shows more than R35bn has already been withdrawn from the system.

Arno Daehnke, Standard Bank group financial director, said on Monday that the impact of two-pot system on the group’s loan book in SA had been muted, despite the group reporting an improvement in NPLs in the 10 months to end-October.

“We are following this [two-pot payouts] very closely. Having spoken to our retail credit experts, we haven’t seen a direct translation into material improvements in credit quality of some of our NPLs,” Daehnke said.

“Small changes have been noted, but I wouldn’t say it has been material.”

President Cyril Ramaphosa signed into law the Revenue Laws Amendment Bill 2023 into law in June, establishing a “two-pot” system that gives retirement fund members access to retirement savings without having to resign or cash out entire pension funds.

A working paper by the Reserve Bank said there was a likelihood of households spending a portion of these withdrawals to reduce debt. 

Standard Bank said its headline earnings grew by low to mid  single digits in rand terms and by mid-teens on a constant currency basis in the 10 months to end-October.

Currency devaluations in the various African countries in which the group operates and the recent strength in the rand continued to dilute the group’s performance in rand, the group said in a voluntary update.

“Previously, this impact was expected to moderate in the second half of the year, however, this was not the case in the four months to October 31,” the bank said.

“Importantly, while the impact thereof is a headwind to reported revenue growth trends, it also favourably impacts reported operating expenses and credit impairment charges,” it said.

The group said its underlying operational and financial trends were robust and reflective of the continued momentum in the underlying franchise.

Banking headline earnings grew by low to mid single digits in rand terms and by mid-teens on a constant currency basis period on period.

Balance sheet growth had been slower than expected due to larger-than-expected currency movements in African regions and net interest income growth slowed to low to mid single digits period on period, it said.

Non-interest revenue declined by low to mid single digits as continued growth in fees and commissions was more than offset by a decline in trading revenue off a high base.

Cost growth was well contained, reflecting continued cost management discipline and dampened by currency translation impacts. Revenue growth remained slightly ahead of cost growth.

Credit impairments were lower period on period due to a slowdown in early arrears and lower inflows into non-performing loans in Personal and Private Banking.

The group’s credit loss ratio remained in the top half of the group’s through-the-cycle range of 70-100 basis points.

In line with previous guidance for the year to end-December, the group remains committed to delivering banking revenue growth of low single digits in rand and low double digits in constant currency and banking revenue growth at or above operating expenses growth, resulting in a flat to lower cost-to-income ratio year on year.

The group’s return on equity is well anchored in its target range of 17%-20%.

Standard Bank will provide guidance for 2025 when it reports its annual financial results in March 2025.

mackenziej@arena.africa