Bloomberg News

FirstRand CEO Says Slowing Economy Boosting Bad Debts

November 02, 2012

FirstRand Ltd. (FSR), South Africa’s second-biggest bank, said the country’s slowing economy is boosting bad debts in areas including mortgages and car loans.

“In different credit books from the home loan book, the Wesbank motor vehicle book, the personal banking book, there are pockets of increases” in defaults, Sizwe Nxasana, chief executive officer of the Johannesburg-based bank said in an interview at the bank’s headquarters in Johannesburg yesterday. “It’s not across the board” and it’s not out of line with what the bank expected, he said.

An economic slowdown and rising unemployment is hurting consumers’ ability to repay loans, prompting the government and a banking lobby group to jointly propose stricter rules on lending. The government cut its 2012 growth forecast to 2.5 percent from 2.7 percent on Oct. 25. The jobless rate climbed in the third quarter to 26 percent from 25 percent in the three months to June, the national statistics agency said yesterday.

The number of consumers with impaired credit records climbed to 9.2 million, or 47 percent of borrowers, from 8.8 million a year earlier, according to central bank data. Barclays Plc (BARC)’s Absa Group Ltd. (ASA) and Standard Bank Group Ltd. also reported an increase in bad debts with Absa saying on Oct. 31 that its credit-loss ratio is forecast at 1.5 percent this year, up from an earlier estimate of 1.4 percent.

Rising Trend

“There are strains in the unsecured environment,” Nxasana, 54, said. “The trend continues to exhibit increasing non-performing loans and impairments, especially in the mass market.”

FirstRand’s credit-loss ratio increased to 0.94 percent in the fiscal year to June from 0.93 percent a year earlier. Nedbank Group Ltd. (NED), South Africa’s fourth largest bank, said on Oct. 29 its ratio had dropped to 1.03 percent in the third quarter from 1.13 percent a year earlier.

Nedbank’s year-end ratio will be “slightly below 1 percent,” CEO Mike Brown said in an interview on Oct. 24. He attributed the reduction to Nedbank’s consistent adherence to strategy and lack of management changes.

The National Treasury and the Banking Association of South Africa agreed stricter lending rules yesterday, as banks including Absa, African Bank Investments Ltd. (ABL) and Capitec Bank Holdings Ltd. (CPI) posted a rise in bad debts and the country experienced a spike in unsecured lending and indebtedness.

FirstRand shares rose 1.7 percent to 29.50 rand at the 5 p.m. close in Johannesburg, the highest on record, giving the company a market value of 166 billion rand ($19 billion). FirstRand has gained 42 percent this year, making it the best performer in the six-member FTSE/JSE Africa Banks Index.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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