South Africa’s Nedbank Group (NEDJ.J), amongst the top five lenders in the country, warned last week that its bad loans would stay elevated for the rest of the year and it could miss its 2025 financial targets.
But its shares were up 2.5% in early trading as profit for the six months ended June 30 jumped 11% and CEO Mike Brown projected a drop in bad loans from the first half.
The top five private South African banks – among the continent’s biggest – are generally considered well-capitalised, conservative in lending and a potent force driving an otherwise ailing economy.
But a combination of inflation, high interest rates, local factors of regular blackouts and logistical bottlenecks are taking a toll on its most sensitive retail and small business customers, leading to defaults.
“Someone who has got an entry-level home, an entry-level car, they’ve now had to absorb the 350 basis points interest rate increases over the last 12 months,” Brown said, referring to the segment of people most under pressure.
Small businesses in agriculture are also the ones which are taking a hit, he added.
This has forced impairment of assets worst 5.3 billion rand, a 57% jump.
Its credit loss ratio (CLR) – a critical metric that measures bad loans over total loans – spiked to 121 basis points, breaching the three-digit figure only seen during major financial crises.
“We expect to reduce (CLR) in the second half of the year but still finish above 100 basis points,” Brown said, adding the pressure on CLR would continue in the first and second half of next year.
These could hurt its medium-term 2025 target of more than 17% return on equity (RoE) – a measure of how much profit a company earns for each rand invested by shareholders, he said.
It posted an RoE of 14.2% for the first half and interim profit of 15.25 rand. The lender will distribute more than half of these profits as dividend to shareholders.