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Standard Bank, South Africa’s largest lender by assets, says credit impairment charges jumped nearly 50 percent in the first five months of the year (compared to the comparative period in 2022) as consumers faced mounting pressure from the country’s deteriorating economy, sticky inflation, and higher interest rates.

Yesterday, the bank issued a voluntary trading update for the five months to the end of May 2023, noting credit impairments related to consumer banking are currently elevated, with clients with home loans feeling the most pressure.

Standard Bank says the higher interest rates and current inflationary environment have led to some of its clients being unable to fully meet their debt obligations.

“Overall, the credit loss ratio for consumer banking clients is outside the target range of 100 to 150 basis points (bps). Coverage levels remain strong for this business,” the bank however, adds.

Credit impairments have also increased in the business and commercial banking units on the back of a buildup of new non-performing loans.

The bank’s bad loan provision is the latest indication of the financial stress that South African consumers are under.

In keeping with its combative approach to taming sticky inflation, the South African Reserve Bank (Sarb) has already increased the repo rate by a cumulative 125 bps in 2023 and delivered successive hikes of 50bps at its last two meetings.

The policy tightening leaves the current repo rate of 8,25 percent. Standard Bank expects a further 25bps hike in the second half of the year, it said yesterday.

While higher interest rates generally benefit banks’ top-line earnings, it immediately makes paying off debt more expensive and puts strained consumers under further pressure.

The bank also included a trading statement for the six months to the end of June in its latest Sens update, flagging profit growth of more than 20 percent, as it continues to benefit from the endowment effect of higher interest rates.

Eearnings per share is expected to rise more than 20 percent during the period under review. — Moneyweb.