DURBAN – Nedbank Group chief executive Mike Brown has issued a strong warning to the government stating that the country is fast running out of both time and money, and urgently needs structural reforms to stem economic and fiscal deterioration.
He sounded the warning on Tuesday after the lender released its results for the six months to end June, reporting a 2.6 percent growth in headline earnings to R6.9 billion and a return on equity of 17.9 percent.
“While there were some positive developments post the South African national general elections in May, progress on structural reforms and policy certainty remained far too slow,” Brown said. He said if the country failed to institute structural reforms to stem the economic and fiscal deterioration, job losses and more downgrades could follow in the future.
“If we are unable to do this, all the hard work done on maintaining our last investment grade rating from Moody’s will be in vain, at great cost to all South Africans due to higher inflation and higher interest rates as well as lower growth and lower levels of employment than would otherwise have been the case,” he said.
Last month, Fitch Ratings also downgraded South Africa to a notch below investment grade.
It now rates South Africa’s debt at BB+, a notch below investment grade, with a negative outlook.
Last week, Fitch also revised the outlook on the country’s big five banks from stable to negative.
Fitch said the big five, which include Nedbank, could not be rated above the country’s debt. The agency said the banks have significant exposure to government securities and lending to the public sector.
Nedbank chief operating officer Mfundo Nkuhlu said the ratings downgrade did not come as a surprise.
“South Africa’s growth forecasts for 2019 has been revised down from 1.3 percent to 0.5 percent. It's not surprising we are seeing these high levels of unemployment which is above 29 percent, with the youth unemployment above 50 percent,” Nkuhlu said.
He added that although the group had reported a 2.6 percent growth in headline earnings, Nedbank expected to perform better in the second half.
Revenue increased by 5.5 percent to R27.69bn while diluted headline earnings per share increased by 3.7 percent to 1 411 cents a share.
The group declared an interim dividend of 720c, which was up by 3.6 percent compared to last year’s 695c.
Its subsidiary, Ecobank, continued with its recovery, reporting a 19.6 percent rise in headline earnings to R293 million.
Nedbank shares closed 0.94 percent lower at R227.96 on the JSE on Tuesday.