Standard Bank warned that it expects to report a substantial decline in earnings for the year ended December 2020 as it struggles with unsecured loans. Standard Bank warned last year that it had identified pockets of pressure in its Personal & Business Banking (PBB) portfolio, particularly within personal unsecured lending. Unsecured loan is credit extended by the lender that doesn’t require any type of collateral. Instead of relying on a borrower’s assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness. These loans can include personal loans, student loans, and credit cards. Balance sheet growth has slowed, margin pressure continues, as the impact of previous interest rate cuts filter through. The country’s repo rate is at an all-time low of 3.5%, following numerous cuts in recent quarters, to try to kick-start a stagnant economy. The prime lending rate is at 7%.
South African banking system is negative, driven by persistent challenging operating conditions, deteriorating loan performance and lower profitability. Operating conditions will remain weak for South African banks over the outlook period, with economic activity remaining sub-par amid limited progress made on economic reforms. Weakened corporates and households, along with subdued business opportunities, will dampen banks’ financial performance. Loan performance to deteriorate in 2021, with problem loans to continue rising beyond the 5% of gross loans reached in November 2020, as both corporate and household balance sheets are stretched by weaker profits and disposable income. Lower dividend pay-outs and other capital enhancing measures will help maintain capital metrics at current levels.