South African Banks Hopeful for Recovery Despite Challenges Caused by COVID-19
South African bank stocks have declined by almost 40%, which already is more than twice as deep as the financial slump 2015 which was the worst recession recorded.
Despite the difficult times there has been hope for better results.
While the coronavirus pandemic has affected earnings, banks in South Africa have adapted measures to cushion themselves against the effects of the pandemic. Under the revised accounting standards, they have increased provisions for Covid-19-related losses, high capital buffers have also remained intact hence strengthening the case for dividends to resume once regulators give the go ahead.
Peter Brooke the Cape Town-based head at macro solutions said that the accounting measures that had been introduced force the banks to bring to light their bad-debts cycle and concentrate on it.
“This means from 2021 on wards, provisions will decrease and profits will increase, which, in our language, means we have an improving theme.”
Banks are required to set aside 31 billion rand so as to cover potential bad loans Although their profit in the period ended 30th June 2020, dropped by an of average 69%, the lenders still booked a combined 11 billion rand in earnings, none of which is being paid to shareholders.
South African banks however, still face the challenge of the hard blows on the economy caused by COVID-19.
The gross domestic produce in South Africa decreased by 51% from April to June when the COVID-19 infection was at its peak in the country.This resulted to a strict lockdown in the country which resulted to an extended recession the longest since 1992.