South African consumers and businesses that have fallen on hard times due to the impact of the Covid-19 pandemic were the biggest drag on Standard Bank in the first six months of 2020, causing the group’s headline earnings to tank 44% to R7.5 billion.
The bank said that, as of June 30, it had provided R107 billion in Covid-19 client relief to its personal and business banking (PBB) customers in South Africa, which represented 18% of its PBB SA portfolio. It provided a further R11 billion to personal and business banking customers in its Africa Regions.
The latest financial statement of Africa’s biggest bank by assets show that had it not been for the elevated impairment provisions in its local personal and business banking division, it would have better ridden out the Covid-19 wave as its operations in the rest of Africa proved relatively resilient. While South Africa’s headline earnings declined 72%, Africa Region’s contribution to the group’s banking headline earnings grew to 62%.
Standard Bank’s banking operations faced their own struggle in South Africa,but earnings were also negatively affected by a R2.2 billion loss for its insurance business, Liberty. Standard Bank holds a 57% stake in Liberty, and thus recorded R700 million as its share of the loss after adjusting for treasury shares.
The bad debt headache
With many customers laid off, and businesses closed or operating at a fraction of their usual capacity, Standard Bank said its impairment provision rose 2.7 times to R11.3 billion. Due to the uncertainty of the current environment, the bank set aside an additional R500 million provision for bad debt. The group’s credit loss ratio is twice what it was in June 2019 at 169 basis points.
The bank said that, as at June 30, stage 3 loans – also called non-performing loans because of consistent non-payment – represented 4.6% of the portfolio.
While customer activity is recovering, it expects trading revenues for 2020 to be lower than the first six months. It warned that while bad debt provisions at its personal and business banking division are sufficient for now, they are sensitive to macro-economic developments as well as client behaviour. Some customers continue to ask the bank to extend their payment holidays or provide other relief measures.
“Client behaviour post the expiry thereof will be key. Forecast risk remains high, and should the outcome be worse than expected, additional provisions will be required,” warned the bank in its results booklet.