Banks can get a profit boost from higher interest rates. Their massive cash balances earn higher interest, and their net interest margins also improve. But higher rates curb credit demand and add pressure on clients, leading to more bad debts. Higher interest rates have brought a spike in debt counselling cases.
Titi said Investec would also expect some of its clients to"come under pressure". But because of the bank's business model in SA, which targets corporates, high-net-worth individuals and high-income clients, he expects Investec's client base to remain resilient. "But generally, while our clients will have some pressure, they generally do much better and are more resilient than the general market, said Titi.Still, the group's credit loss ratio almost tripled to 0.23%, though it is still only approaching the bottom end of its through-the-cycle range of 0.23% to 0.35%. In its 2024 guidance, Investec said it expects a normalisation to within its range.
In its SA specialist banking division, credit loss impairment charges from R51 million in March 2022 to R289 million at the end of this March, with the ratio rising to 0.08%, from zero previously. "The charge this year results in a credit loss ratio of about eight basis points. That's still below where we anticipate to normally operate at between 20 to 30 basis points… We have started to experience some specific impairments. But those are really specific to specific exposures," said Investec financial director Nishlan Samujh.In times of uncertainty you need journalism you can trust.
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