Standard Bank and others shut off the supply 

Data from the Reserve Bank’s Prudential Authority shows that banks have slashed lending as defaults on products ranging from mortgages to credit cards rise. 

South African banks have greatly benefited from a rising interest rate environment, with the ‘Big Four’ of Absa, FNB, Nedbank, and Standard Bank posting combined headline earnings of R113.2 billion in the past financial year. 

However, the longer rates remain elevated, the more financial pain these banks are experiencing as non-performing loans rise. 

The Reserve Bank’s data showed the banking sector’s non-performing loans are at their highest levels in a decade and are still rising. This may reduce the banks’ capital levels and negatively impact their profitability. 

To prevent this impact from being too severe, banks have steadily tightened their lending criteria and limited credit extension. 

In its annual report, the Prudential Authority said new loan growth was subdued at the beginning of 2024 while defaults had skyrocketed. 

Credit extension only grew at 3.97% year-on-year to March 2024, while defaults on residential mortgages have surged 36% over the same period. 

Furthermore, 9.9 million credit-active South Africans have missed three months of repayments or have an adverse listing against them. 

The country’s banking regulator said banks’ reductions in credit extension have equally impacted small and medium-sized enterprises (SMEs). 

Large financial institutions have tightened their lending criteria for this sector, with credit extension to SMEs only growing at 2.2%. 

Banks have begun proactively working with their clients to restructure loans and ensure they remain adequately capitalised by implementing rigorous risk containment efforts. 

Banks continued to implement numerous credit policy adjustments such as payment holidays, aligning salary dates with payment dates, and implementing preventative strategies, the regulator said. 

South Africa’s largest bank by assets, Standard Bank, has said it will keep its lending taps tightly closed following a rise in credit impairments. 

It said an increasing number of clients cannot pay back their loans due to elevated interest rates and a higher cost of living. 

High interest rates increase the cost of servicing debt, as repayments on mortgages, car loans, and other forms of lending rise in lockstep with the repo rate. 

In a pre-closed trading period call, CFO Arno Daehnke elaborated on the bank’s efforts to tighten its lending criteria alongside its peers. 

“In the restated five months of the last year, income growth was supported by higher average interest rates and higher client transactional volumes but dampened by lower trading revenues,” he explained. 

While changes in interest rates have increased net interest income, Daehnke said this has delayed an equal and opposite increase in credit impairment charges this year. 

“The elevated credit charges resulted in a credit loss ratio for the period being above the top of the groups through the cycle target range of 100 basis points.” 

“This is not unexpected considering the stage of the cycle and the fact that the credit loss ratio is traditionally higher in the first six months of the year relative to the second.”

Daehnke noted that this is a continuation of the bank’s efforts to cut lending since the beginning of 2023. 

Overall, demand still outstrips supply, resulting in Standard Bank having to reject credit applications. 

Standard Bank South Africa CEO Lungisa Fuzile said that while household credit growth is slowing, the bank will continue to finance renewable energy projects on various scales. 

Fuzile also said that higher-income households remain in a strong position, and the bank will continue to extend credit to these individuals.