“These discussions are definitely happening,” says Khandelwal, who is CEO of BNP Paribas South Africa. Relief will be decided on by each individual bank and will also need the approval of the regulator, he said. “It’s something that every bank has to consider.”
By late August, South Africa’s banks had provided 48bn rand ($2.8bn) in relief to business and individuals. The bank association said on 10 September that there has been an increase in uptake for its COVID-19 loan guarantee scheme, even as private-sector demand for credit continues to slow. The scheme is a partnership between the treasury, the central bank and commercial lenders to support businesses with loans until conditions improve.
BNP Paribas has a corporate and investment bank based in Johannesburg. It also offers unsecured consumer loans through its RCS subsidiary based in Cape Town, which has about a million customers.
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Being a niche player, Khandelwal says, has helped the bank as it is less exposed to local conditions. The consumer loans business has been affected, he adds. “We have tried to provide relief to consumers, within limits.”
Unsecured loan losses may be about to increase.
- According to Matthew Pirnie, an analyst at GCR Ratings in Johannesburg, South African banks’ credit losses will increase to between 1.5%-1.7% for the top tier lenders, rising to over 2% for the sector as a whole.
- Unsecured and semi-secured lending, which accounts for over half of total household liabilities, will be the major source of credit losses, he wrote on 17 August.
- SME lending will also see significantly higher credit losses – thought this represents only about 7.5% of loans, writes Pirnie.
New Working Model
Many of the bank’s meetings with corporate clients are now conducted virtually. About a third of the bank’s staff are working in offices while two-thirds are at home. “The 100% office model has been shaken,” says Khandelwal. People are now less stressed and more efficient as they no longer waste time commuting. Though critical functions still need to carried out in offices, the pandemic has “broadened the horizons” n working culture. “Working from home is here to stay.”
The bank’s strategy in South Africa remains unchanged, though the pandemic has altered its future prospects. “We would have expected a growth trajectory,” says Khandelwal. “Growth will be slower.”
- Digitalisation has been given a fresh urgency.
- BNP is accelerating the process of building local automated tools which connect its corporate customers with the bank’s global systems.
Though post-lockdown experience in Europe gives few grounds for optimism, Khandelwal believes the worst is over. “The trend of the infection is reducing” in South Africa, he says. “We’ve been through the peak.” The impact of a renewed lockdown on the economy would be “dire”, adds Khandelwal. “From an economic perspective, a new lockdown must be avoided at all costs.”
A second wave leading to a fresh lockdown would increase the pressure on banks who have weathered the storm so far.
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