Standard Bank Profit Drops as Virus Spurs More Loan Defaults

(Bloomberg) --

Standard Bank Group Ltd. said first-quarter net income declined 27% after Africa’s largest lender prepared for a surge in loan defaults as measures to contain the coronavirus batter business and personal incomes alike.

Credit-impairment charges for the three months through March were “significantly higher” than in the prior year, the Johannesburg-based company said in a statement on Wednesday. “The increase was driven by deterioration in both the portfolio performance and the forward-looking assumptions used in the modeling of expected credit losses.”

South Africa, Standard Bank’s biggest market, is in the process of a strict five-week shutdown that has brought the economy to a halt. Policy makers have cut interest rates by 225 basis points this year to mitigate a recession, while Standard Bank and its peers agreed to lower fees and help customers caught in the virus fallout.

President Cyril Ramaphosa on Tuesday unveiled a 500 billion rand ($26 billion) package to shore up the economy, of which 200 billion rand will be allocated to a loan-guarantee program for banks.

“It is worth noting that, by 31 March 2020, the Covid-19 related stress on individuals and businesses had, to a large extent, not emerged yet and the provisions raised were based on our best estimate at the time,” Standard Bank said.

Standard Bank’s stock fell as much as 5.9% at the start of Johannesburg trading, the biggest decliner in the five-member FTSE/JSE Africa Banks Index, as the shares traded without rights to the latest dividend. The stock is down 45% this year, compared with a 44% decline in the index.

Standard Bank’s profit also took a hit after a 40% stake in London-based ICBC Standard Bank suffered a small loss, while earnings from its 20% holding in ICBC’s Argentina unit weren’t included. The performance of its South African insurance business, Liberty Holdings Ltd., was affected by volatile equity markets.

While the company had “fairly robust” loan growth in the first three months of the year, lower interest rates weighed on margins. Operating expenses were well managed and revenue growth outpaced costs.

©2020 Bloomberg L.P.

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