SA's "Big Four" banks hit by R27bn bad debt charges

Source: 123RF.

The firm recalculated certain amounts and ratios using publicly available data for comparability. Despite a challenging operating environment, the report highlighted that these banks have still achieved positive growth during the first six months of 2024.

The "Big Four" banks' combined headline earnings rose by 2.5% to R56.8bn, while bad debt hit R27.1bn. Their average credit loss ratio is 100 bps, slightly lower than 2023.

Rising default pressure

Bad debt charges arise when a borrower defaults on their loan, requiring the bank to either write off the loan or set aside funds to cover these non-performing assets.

As a result, South Africa’s major banks have been compelled to allocate substantial funds to cover potential losses, driving their bad debt charges higher than expected.

PwC's South Africa Major Banks Analysis highlights the link between rising interest rates and increased credit impairments. Higher rates strain household budgets and business cash flows, leading to more defaults, particularly in consumer and small business segments, where debt servicing becomes increasingly difficult.

PwC reported that by early 2024, over 10.1 million South African consumers had impaired credit records, with the number continuing to grow as more households struggle to keep up with payments.