EDITORIAL: Banks brace for bad debts
SA’s bankers are buckling up for a flood of bad debts
SA’s bankers are buckling up for a flood of bad debts. This week, Absa set aside an immense R7.3bn to cover a tide of expected loan defaults from consumers and companies unable to pay their debts.
This provision, which took Absa’s total bad debt charge to R14.7bn for the six months to June, caused its earnings to slide 82% for the half-year.
As the FM details here, Absa may be marginally worse off than most, but the financial results show that none of the banks is getting out unscathed.
But the deeper concern is that CEO Daniel Mminele may just be right when he said that "the impact of this crisis will reverberate for years to come".
That’s not what investors will want to hear. Rather, they’d be hoping that bank earnings will take a sharp knock now, but recover towards the end of the year.
As comforting as this dream of a V-shaped recovery might be, the reality is that the economy has fundamentally weakened, partly thanks to Covid, partly due to ANC inaction.
SA has a conservative banking sector — too conservative maybe — but it means it should be able to ride out this storm.
But that’s more than you can say about the millions of people with mortgages and vehicle loans, who have now lost their jobs. And, depressingly, many of those jobs won’t be returning. quickly.
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