Reserve Bank says lenders can handle coronavirus crisis

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South Africa’s central bank said on Wednesday the coronavirus had resulted in far reaching risks to financial stability and banks’ profitability would suffer, but lenders were in a good position to weather the storm.

The country’s banks, some of the largest on the continent including Standard Bank and FirstRand, have seen profit growth slip in recent years, while risks from lending to the increasingly strained government and the economy have increased.

The South African Reserve Bank (SARB) said the pandemic would exacerbate these problems, while also causing a rise in bad debts from households and businesses already struggling after the economy tipped into recession at the end of 2019.

Its bi-annual review of financial stability said banks were well capitalised and resilient, while stress testing during 2018 had shown they would be able to cope with severe macroeconomic shocks, although the scenarios used are hard to compare to the current crisis.

“However, let me be clear. Financial stability risks are elevated and the outlook is challenging,” SARB Governor Lesetja Kganyango said while presenting the review.

“Much remains unclear about the nature and duration of the downturn we are currently experiencing and about its impact on the financial sector.”

The SARB’s 2018 stress test included scenarios encompassing a 4.8% decline in economic growth for four consecutive quarters and a longer but smaller downturn lasting almost three years. It said in both banks maintained adequate levels of capital.

It currently expects South Africa’s economy to shrink by at least 7% in 2020.

In the video below, the Reserve Bank predicts economy will contract by 6%: