The Bank’s Kuben Naidoo says there are ‘no easy options’ as the struggling economy battles through the pandemic
SA banks will probably have to raise further provisions for bad loans as measures to contain the coronavirus weigh on the struggling economy, hindering the ability of customers to repay loans.
Banks have extended credit relief to customers and raised provisions for bad debts after SA’s economy ground to a near halt in the wake of a strict lockdown imposed at the end of March to curb Covid-19. While most business activity resumed in June, after a gradual reopening, industries such as tourism and aviation are still restricted. The Bank is predicting a 7% contraction in GDP this year.
“If you had asked me in March or April, I would’ve predicted a very, very sharp deterioration in economic conditions, but a fairly quick recovery,” Naidoo said. Now, with the global economy poised to take longer to recover, and SA growth only likely to get back to pre-coronavirus levels in 2022, banks, their clients and the trend in bad debts will be affected.
Periods of added stress, such as the crisis brought on by the Covid-19 pandemic, could lead to more consolidation in the industry, with bank failures a possibility, he said. But, “in general the banking system is pretty resilient”.
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