The increasing interest rate environment has proven favourable for banks, with Nedbank revealing yesterday that for every 1% increase in the interest rate, it pulls in another R1.8-billion in revenue before taxes. 

Management adds that this is, of course, offset by lower growth and higher impairments as consumers take strain under steadily increasing debt repayments. 

For the six months to June 2023, the Nedbank Group saw a 10% climb in headline earnings to R7.3-billion. 

“The increase in headline earnings was underpinned by strong revenue growth and good expense management. This was partially offset by a 57% increase in the impairment charge, particularly in the retail consumer banking segment,” Nedbank said in its interim results statement on Tuesday. 

Chief executive Mike Brown noted double-digit increases in loan repayments in floating rate products such as home loans and vehicle finance, along with higher levels of growth in essential expenditure items such as groceries education and healthcare. 

“This has left many consumers with little option but to spend less on discretionary items such as clothing and home improvements, and has also led to higher levels of arrears and defaults on lending commitments,” he said.  

Commenting on the difficult operating environment, Brown said that in addition to a weak global economy and lower commodity prices, domestic economic activity continued to be negatively impacted by very high levels of load shedding, logistical constraints, higher-than-expected levels of inflation and higher-than-expected increases in interest rates.

“[Although] progress is being made in improving outcomes on the key issues of energy security, transport and logistics, and crime and corruption, [it] is slow. 

“Coupled with the potentially severe economic consequences of the US reaction to South Africa’s allegedly compromising its non-aligned stance in relation to the Russia-Ukraine conflict, [this] has added further to South Africa’s country risk premium, increasing bond yields and resulting in a deterioration in the value of the rand against foreign currencies,” he warned.

Impact of rolling blackouts

While record levels of rolling blackouts had a limited impact on Nedbank’s operations, the bank reports seeing a negative impact on clients while stepping up to the finance opportunity with renewable energy and private power generation solutions.

“While it should never have happened, load shedding has increasingly become a catalyst for renewable and embedded-energy investments for individuals and companies to reduce costs, and reduce their dependence on electricity supply from Eskom. 

“Electricity outages adversely impact business and consumer confidence, as well as increase inflation and, as a result, limit GDP growth. From an SME perspective, load shedding is making it increasingly difficult to start a business,” Brown said, adding that “urgent and decisive action is required [from] government, labour, civil society and business”.

During the period under review, Nedbank provided R1.6-billion worth of affordable new home loans, financing 2,600 homes. Lending exposure to small businesses and small business owners was R21-billion and another R28-billion of finance was extended in the renewable energy space. 

Shareholders will receive an interim dividend of 871 cents per share. DM