South African bank Absa flags above-target loan losses

JOHANNESBURG (Reuters) – South African bank Absa said on Friday its loan losses were expected to have risen above its target range in the first half of this year as consumers felt the burden of higher interest rates.

The South African Reserve Bank has raised rates by 475 basis points since late 2021, taking its main lending rate to its highest in 14 years in an effort to bring down sticky inflation.

“With South African consumers under pressure due to significantly higher interest rates, credit impairments are expected to increase substantially,” Absa said in a voluntary trading update.

The bank expects a credit loss ratio of between 1.25% and 1.30% in the six months to the end of June, higher than its “through-the-cycle” target range of 0.75% to 1.0%.

A credit loss ratio is a measure of the quality of a bank’s loan portfolio, and is calculated as the amount of loan losses it experiences as a percentage of its total loans.

Absa’s 2022 credit loss ratio was 0.96%.

Other South African banks like Standard Bank and Nedbank have flagged that their bad loans will probably rise this year.

Despite the warning on loan losses, Absa’s shares were up about 0.4% in Friday afternoon trade in Johannesburg. Absa will report its interim financial results on Aug. 14.

(Reporting by Tannur Anders; Editing by Alexander Winning and Jan Harvey)