SA Local banks face tough year despite being well managed

South African lenders would have a "very tough year" as the benefits of interest rate cuts would not be felt until next year, the industry's chief regulator said on Monday.

"In the lead-and-lag effect of the monetary policy cycle, the effect of interest rate cuts won't improve impairments at banks this year," said Errol Kruger, the Registrar of Banks. "It will be a very tough year for banks in South Africa, and not of their own making."

Bad loan impairments at the retail units of Standard, Absa, FirstRand and Nedbank more than doubled last year after six interest rate increases in the 12 months to June pushed borrowing costs to a five-year high.

The Reserve Bank has cut rates three times since December as the economy threatens to slip into its first recession since the end of apartheid in 1994.

The lenders, all of which had reported profits last year, were "stable" and there "will be no surprises", Kruger said.

Financial institutions worldwide have announced almost 300 000 job cuts since the beginning of the credit crisis as write-downs and losses have swollen to $1.3 trillion (R11.8 trillion).

FirstRand said the National Credit Act had helped banks avoid the worst of the global crisis. The act bolstered protection for consumers by tightening lending controls.


While the 65-member Bloomberg Europe banks and financial services index slumped 65 percent last year, the JSE banking index fell just 15 percent. The index has dropped a further 10 percent this year.

"We've got exceptionally strong management in the banks," Kruger said after a 16-month period in which the heads of Citigroup, Merrill Lynch and Royal Bank of Scotland left their posts amid the worst financial crisis since the Great Depression.

Bad loans rose to 1.55 percent of Standard Bank's total lending last year, from 0.8 percent in 2007, while those at Nedbank rose to 1.17 percent from 0.62 percent.

The central bank's monetary policy committee will announce its next rate decision next Thursday.

The new government should "stay the course" on economic policies, Reserve Bank governor Tito Mboweni said early this month.

South Africa's central bank has operated as an independent entity since 1994.

Standard Bank fell 3.2 percent to close at R79 on Tuesday. Absa's stock fell 4.39 percent to R91.50, while FirstRand fell 3.2 percent to R12.10. Nedbank fell 4.87 percent to R82.50. - Bloomberg