PHOTO
South African bank Investec sees credit impairments decreasing over the next year as interest rates come down, its CEO said on Friday, as the bank raised its half-year profit forecast.
South Africa's central bank cut its main interest rate on Thursday for the first time in more than four years. Before that it raised rates 10 times consecutively.
The high interest rates, along with inflationary pressures and regular power blackouts have taken a toll on South African banks' most sensitive retail and small business customers, leading to defaults and a squeeze on loan growth.
Group Chief Executive Fani Titi told reporters on a call that interest rate cuts should encourage the bank's clients to take on more lending products and companies could start investing more.
"Generally we expect to see less pressure on clients and customers and as a consequence, over the next 12 or so months we'd expect to see impairments start to unwind pretty significantly," Titi said.
The bank, which also operates in the UK, said in a statement that the overall credit quality in the five months to Aug.30 remained strong, in line with the position at the end of its last financial year that ended in March 2024, with no evidence of trend deterioration.
Its credit loss ratio - a measure of bad loans as a percentage of total loans - is expected to be around the upper end of its through-the-cycle range of 25 basis points to 45 basis points in the six months ended Sept.30.
The group also expects half-year pre-provision adjusted operating profit to increase to between 520 million pounds ($691 million) and 550 million pounds compared with 487.7 million pounds in the previous comparable period.
Headline earnings per share is expected to be between 35.3 pence and 38.2 pence from 36.9 pence.
Investec said the early part of the five-month period was characterised by low levels of activity ahead of the national elections in both South Africa and Britain.
But the latter part of the period saw a more positive economic outlook, reflecting increasing certainty on global interest rate cuts. ($1 = 0.7527 pounds)
(Reporting by Nqobile Dludla. Editing by Jane Merriman)