'We knew this time would come' - Standard Bank ups its interest rate forecast

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  • Standard Bank expects another 75 basis-point interest rate hike this year, taking the total for the year to 175 basis points.
  • In March, the bank was forecasting only a 100 basis point hike, but the Reserve Bank raced to that goal by May.
  • The bank is now "cautious", but won't pull a handbrake on lending.

Standard Bank has adjusted its interest rate forecast for South Africa upwards to 175 basis points - this as the SA Reserve Bank is not ruling out another 50-basis-point hike in July

The Reserve Bank has already increased the interest rates by 100 bps in the first half of this year. This was over and above the 25 bps hike in November 2021.

In March, Standard Bank Research was expecting the interest rates to only increase by 100 bps for the full year.

The bank's CFO, Arno Daehnke, said they have seen monetary policy tightening in many other markets where Standard Bank operates. Other markets are even more aggressive in their hikes than SA.

Daehnke says Standard Bank's business and consumer credit portfolio is still healthy, with no early signs of stress in any segment.

"However, we are quite cognisant that the most recent rate hike was 50 basis points. So, we might get more 50-basis-point rate hikes. And that may put slightly higher pressure on our credit charges going forward, he said.

Daehnke said the bank is managing its credit forward-looking outlook "carefully" in light of these expected increases. So, while it was anticipating a 100 bps hike when issuing new loans at the beginning of the year, it now assesses customers' ability to afford those loans based on a 175 bps increase on their instalments in 2022.

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But Standard Bank said it enters this rising interest rate cycle with its balance sheet provision levels well above historic levels. So, while it is cautious, it will not be pulling a handbrake on lending.

"Consumers are relatively low leveraged. Some of the affordability criteria which we have will remain intact. It's not that we have to tighten [our] belts," he said.

Thembelihle Ngema, the CF for Standard Bank's Consumer and High Net Worth Clients unit, said the bank's coverages are now far higher than they were in 2019 as it was worried about the potential impact of Covid-19.

But also, when it was lending to customers during the record-low interest rate period in 2020 and 2021, it was cautious.

"We knew that this time would come," she said.

Barbara Bell, the CFO for Standard Bank's Personal and Business Banking unit, said her business unit is also taking into account how the rising inflation is pushing up input costs for business customers, and thus their ability to repay their loans.

"But there's no significant handbrake-pulling, just, rather, remaining cautious," she said.

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