Standard Bank of S. Africa reports 43% drop in half-year profits as bad loans skyrocket

Sstandard bank bad debts almost tripled

This helps reduce profits by 43%

Lender says it remains resilient

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JOHANNESBURG, August 20 (Reuters)Standard Bank of South Africa SBKJ.J announced a 43% drop in half-year profits on Thursday, in the middle of its forecast range,as bad loans have skyrocketed due to the fallout from the coronavirus pandemic.

Africa’s largest bank by assets is the first of South Africa’s major lenders to release results and give an accurate picture of the severity of the pandemic that has hit already heavily indebted consumers and businesses troubled country.

Bad debts nearly tripled to R11.3 billion ($ 654.2 million) in the first six months of 2020 compared to the same period in 2019, the bank said.

That brought earnings per share (HEPS) down to 473.8 cents ($ 0.2742), from 837.4 cents reported a year earlier, and in the middle of a forecast range of 418.7 to 586, 2 cents. HEPS is the primary measure of profit in South Africa.

The lender said its results “mirrored those of a resilient and well-diversified underlying franchise negatively impacted in a very challenging environment.”

In addition to the increase in bad debts, the coronavirus has also led to rapid cuts in interest rates and lower domestic commission income for South African banks, already generating very weak profit growth after the economy entered recession at the end of 2019.

Standard Bank’s personal and corporate banking sector was the most affected, with a 60% decrease in profit in the first six months of the year compared to the same period in 2019, although its corporate and investment bank also recorded a 7% drop in profits.

Insurer Liberty Holdings LBHJ.J, in which Standard Bank has a stake of more than 50%, also suffered a loss.

Standard Bank has warned that more bad debt provisions may be needed, but said its capital position remains strong. Its Common Equity Tier 1 ratio – a key measure of banks’ financial strength – was 12.6% as of June 30, down from 12.9% in April and still above regulatory minimums.

The bank said it could not yet provide new medium-term targets, which it said it would revise amid the crisis.

(Reporting by Emma Rumney; Editing by Alexander Winning and Ana Nicolaci da Costa)

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