Nedbank said on Friday it had revised its South African (SA) gross domestic product (GDP) growth forecast for 2023 downwards as trading conditions had declined and its credit-loss ratio was higher than management's expectations.
In a trading statement, the lender said it had altered its SA GDP growth forecast for 2023 downwards from 0.7% in February 2023 to 0.2%.
“The cost implications of load shedding and a weaker rand have resulted in upward adjustments to its inflation forecast, which is now expected to average 6.0% in 2023, up from 5.5% in February 2023,” it said.
According to the bank, in response to higher-than-expected inflation, the weaker rand and the continuous tightening of foreign monetary policy, the SA Reserve Bank’s Monetary Policy Committee increased the repo rate by 50 basis points in March and a further 50 bps in May 2023.
"The Nedbank group economic unit (GEU) now expects the prime lending rate to remain flat for the rest of 2023 at 11.75% before starting a slow decline in 2024.
“As a result, the SA prime interest rate is 75 bps higher than the 11.0% peak expected at the start of the year, with upside risk to this forecast given ongoing rand weakness,” it said.
Nedbank said the primary implication for banks of these worse-than-expected macroeconomic outcomes is increased levels of consumer stress and resultant increases in credit losses, offset to some extent by higher levels of endowment income.
“While currently the economic benefits of increased endowment income are greater than the increase in impairments, this benefit is narrowing and is likely to reverse with further interest rate increases,” it said.
Nedbank said the financial performance of the group in the first four months to April 30, 2023 compared to the first four months to April 30, 2022 reflected mid-teen headline earnings growth with strong net interest income (NII) and non-interest revenue (NIR) growth, a credit loss ratio (CLR) that was above the top end of our through-the-cycle (TTC) target range, very strong associate income growth and focused expense management.
Despite this, the group said revenue growth was currently performing ahead of the 2023 full-year financial guidance provided by management in March 2023.
Nedbank said impairments for the reported period increased when compared to the prior period as the group strengthened its total coverage given the impact of a more difficult macroeconomic environment on consumers.
The group said the operating environment in South Africa in the first four months of 2023 had also become much more challenging when compared to its expectations at the start of the year.
“On top of a weaker global economy and lower international commodity prices, domestic economic activity continues to be negatively impacted by acute electricity shortages, logistical constraints, higher-than-expected inflation and the continued rise in domestic interest rates,” it said.