Standard Bank closing the taps

Standard Bank is tightening its lending criteria and has cut approvals for credit to South African clients and across the continent.

This was revealed in Standard Bank’s financial results presentation and expanded on by CFO Arno Daehnke. 

Africa’s largest bank by assets reported strong results today, with earnings up almost 30%.

However, its credit loss ratio deteriorated to 98 basis points as South Africans and its African clients suffered from the rising cost of living and elevated interest rates. 

These factors have substantially reduced the disposable income of Standard Bank’s clients, resulting in the rise of non-performing loans. 

The bank managed to keep the ratio of its non-performing loans down by tightening its standards for approving credit. 

Daehnke noted that the growth in loans was lower in 2023 than in 2022 due to the bank tightening the taps and a slight reduction in demand for credit. Overall, demand still outstrips supply, resulting in Standard Bank having to reject credit applications. 

In particular, growth in home loans was subdued at only 2% for the year, and lending to small businesses declined by 5% to mitigate the impact of non-performing loans. 

Credit cards and unsecured lending also saw limited growth at 2%, respectively. 

The one exception to this trend was loans to large corporates and governments, which grew 16% in 2023.

Both Daehnke and CEO Sim Tshabalala said the bank would be more proactive in managing its sovereign risk in 2024, given its large exposure to government debt across Africa. 

To manage this risk, the bank only increased loans to clients in Africa by 2% in rand terms, while its South African business grew by 8%. 

The areas where Standard Bank is tightening its lending criteria can be seen in the graphs below. 

This is broadly in line with expectations from S&P Ratings, which said at the beginning of 2024 that South African banks would begin limiting the extension of credit. 

The combination of lacklustre economic growth and rising unpaid loans will result in a subdued private sector appetite for more credit and reduce local banks’ willingness to extend credit. 

Domestic credit growth will remain lower in 2024, at around 5%, after lending plunged in 2023 following a rebound in 2022 as banks became more cautious about extending credit as interest rates rose. 

S&P said banks are likely to extend further credit to specific sectors, such as renewable energy companies and enterprises that import renewable energy equipment, as the country continues to face an energy crisis. 

This is shown in Standard Bank’s results, which show that the bank has pumped over R50 billion into sustainable finance by helping companies go off-grid and financing utility-scale renewable energy projects. 

Outgoing FirstRand CEO Alan Pullinger also noted that South African banks are tightening the lending taps, following the banking group’s results.

Demand from consumers for credit remains elevated, but Pullinger said banks are increasingly tightening the flow of credit to consumers.

“Demand is outstripping supply. Absolutely. You are definitely seeing it in the unsecured lending space, from personal loans to credit cards to overdrafts,” he told Business Day TV.

This is happening across the banking industry, with FirstRand’s peers also seeing strong demand for credit cards, personal loans, and overdrafts.

However, this increased demand is not met by more supply from banks as consumers cannot afford more debt, and banks are unwilling to take on riskier customers.

“Demand is very high for these facilities, but approval rates are very low. Maybe around two in ten people are being approved for these products,” Pullinger said.

He explained that people are simply failing to pass the affordability test for new credit facilities and cannot take on the burden of additional debt in the current environment.