WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-08-02 Time: 17:00:03 Posted By: News Poster
Johannesburg – THE next fortnight is the biggest of the year for SA’s banks. The big four will be reporting their results for the past six months (full-year in the case of FirstRand , which will report a bit later), a critical moment of assessment for investors. The focus of attention will be on bad debts, and the prospects are not looking rosy.
The recession of last year hurt banks badly on the bad-debt line, with retail lending, particularly housing and credit cards, notching up dramatic losses. The combined bad debt charge, almost R36bn worth for the industry last year, was threefold what it was in 2007 before the recession took hold. That directly hits the bottom line of the banks, so profits shrank accordingly, and banks’ share prices fell too.
The big question for investors is how those bad debts have performed over the past six months as a mild economic recovery has taken hold. A change in bad debt fortunes can make a dramatic difference – banks recover some of the bad debts they have already provided for, and they can reduce the automatic provisions made with each new loan written as the historic performance of borrowers recovers. That immediately means a big contribution to banks’ profits. The performance is also a good barometer of the economy as a whole – revealing whether consumers and businesses are buying and investing again.
Nedbank will report its figures today , the first of the big four. It has already indicated to the market that things have been going better than last year, particularly in transactional banking. So that means the bank has been collecting more fees, but not necessarily doing better on the bad-debt front. In the first quarter it actually saw a worse bad-debt performance than the average for last year, although the quarter was better than the first quarter of a year ago. Overall, it should grow earnings by just more than 10%, given the guidance it gave after its full-year results in February.
At the end of the week, Absa will report its figures. With the nightmare of single-stock futures losses behind it, the bank will have a low base to work from in growing earnings. But the comparable performance is likely to be worse than Nedbank’s. Absa told the market last week not to expect fireworks – it would actually report a decline in earnings from the first six months of last year (by 3%-5%) at the headline earnings level (which excludes the effect of single-stock futures). Absa blames the lack of consumer appetite for credit and low volumes in its other business areas.
Standard Bank will not be much better off when it reports next week. Its insurance subsidiary, Liberty, will be the biggest help in growing earnings because it had a disastrous year last year. But its banking business is likely to look something like Absa’s, with tighter interest margins and lower volumes of lending. Earnings will struggle to breach the 10% growth level.
FirstRand’s numbers will be similar when it announces its full- year earnings next month. It will get a boost from the low base set by its huge losses from share trading in the previous year. But its banking business has experienced the same story as the others – consumers continue to cut their debt levels while low interest rates squeeze the profit out of interest margins. FirstRand, though, has seen a better performance in bad debts compared to the previous year, so that is a silver lining.
The critical issue, though, will be what the results say about the next six months. The banks know that the current interest rate environment will eventually translate into increased borrowing. But the problem is just how long interest rates will have to stay low to get the economy moving. If anything has changed in the past few months, it’s that interest rate expectation: rates may not have reached the bottom of the cycle, and will anyway stay low for longer than previously thought. That, at least, is what the bond market is pricing in at the moment.
The ideal environment for banks is a thriving economy, lots of demand for credit, and higher interest rates. That means fat margins, low bad debts, and big profits. The last time banks had such a great time was 2006, when bad debts hit the lowest point in the past decade, propelling profits upwards.
The day will come when that happens again, but the earnings season is likely to tell us that it is going to be further off than the banks had been hoping.
Original Source: 
Original date published: 2 August 2010
Source: http://allafrica.com/stories/201008021038.html?viewall=1