File image: Reuters/Mike Hutchings
SOUTH African banks posted strong liquidity positions this year despite facing the most challenging year in their operations following the Covid-19 outbreak and the country’s subsequent downgrades as a result of faltering economy.
The continent’s largest lender by assets, Standard Bank, this week said it managed to weather the storm but second wave of infections in South Africa and ensuing lockdowns in the northern hemisphere were concerning.
The bank said while the broader impact of Covid-19 on the global economy, disruptions to trade and the potential knock-on impact on Africa was unclear, it expected it to be milder than that seen in the second quarter of 2020.
Standard Bank pointed to its strong capital and liquidity levels to absorb the impact.
“The group’s capital and liquidity levels remain strong. This positions us well to weather any additional turbulence and provides the financial resources to continue to support our clients.
“The group’s common equity tier 1 ratio was 13.2 percent at the end of September, up from 12.6 percent at the end of June.”
In June, Standard Bank flagged that its earnings fell more than 20 percent as the Covid-19 outbreak spooked global markets.
The bank said that its headline earnings per share (Heps) and earnings per share (Eps) tumbled more than 20 percent compared 837.4 cents and 827c respectively last year.
FirstRand also told shareholders that its full-year earnings were expected to fall more than 20 percent during the year end to June, driven by materially higher credit impairment charges.
FirstRand said its headline earnings per share, earnings per share and normalised earnings per share for the year were projected to be more than 20 percent lower, compared to 497.2cents and 538.6c last year.
Absa slammed its full-year dividend payment after its profit plunged 82 percent in the first half of the year on Covid-19.
The lender, in the midst of a turnaround drive when the pandemic struck, had already warned that bad loans would blow a hole in its performance and drag earnings down up to 97 percent.
This week Absa said the impact of Covid-19 remained multilayered in its business. It said it, however, managed to soak up the pressure on its bottom line.
“The banking sector’s performance is closely tied to economic performance, therefore, looking ahead, our research team expects the ongoing economic recovery to support revenues and alleviate some pressures on the impairment line,” it said. “However, in the absence of a firm view on the extent to which Covid-19 may restrict economic activity in 2021, the outlook for the economy and the sector remains uncertain.”
Nedbank said its profits slumped nearly 70 percent in the six months to the end of June as impairment charges surged 202 percent to R7.68 billion on Covid-19.
The group said that headline earnings tumbled 69.2 percent to R2.1bn on the significant increase in impairments, including R2.9bn related to IFRS-9 macro-model adjustments, judgemental overlays for estimated Covid-19-related impacts and expected future job losses.
Jeremy Gorven, a senior analyst at Stonehage Fleming, said South African banks had shown robustness during the tough operating environment.
“Liquidity, which is crucial for maintaining confidence in the banking system, is strong.
“The liquidity coverage ratio has recovered to 147 percent, well above the required level of 80 percent and the healthy return on equity produced by South African banks prior to the crisis enabled them to absorb the shock increase in impairments while remaining profitable. This undoubtedly saved jobs,” he said.
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