Standard Bank sees two repo rate cuts this year

Standard Bank forecasts the Reserve Bank will cut its benchmark interest rate twice by year’s end thanks to the outcome of last month’s elections, a move that would offer a much-needed boost to consumers and the economy.

Africa’s biggest lender by assets has pencilled in the first repo rate reduction in September as consensus builds in the financial services sector that help is on the way for embattled consumers.

• Subscribe to BusinessLIVE

The lender’s CFO, Arno Daehnke, said in an investor call that SA’s post-election outcome was favourable for markets. 

“We expect a continued commitment to the fiscal consolidation plan and ongoing traction to the growth-supportive reforms under way. This should support moderating inflation and monetary policy easing. We expect 100 basis points (bps) of cumulative interest rate cuts,” Daehnke said.

“But we expect them to be spread, with two cuts of 25bps in the second half of 2024, starting in September, and two cuts of 25bps in the first half of 2025. We had previously expected 75bps in the second half of 2024 and 25bps in the first half of 2025.”

The forecast by the Big Blue, as Standard Bank is referred to in financial circles due to the size of its balance sheet, is in line with that of Nedbank, which this month said it expected the Reserve Bank to cut interest rates at least 50bps in the final four months of the year.

The Bank’s monetary policy committee (MPC) kept the repo rate at 8.25% for a sixth consecutive time at its most recent meeting in May. The committee’s next meeting is scheduled for July 16-18.

In his speech at the conclusion of the MPC’s May meeting, governor Lesetja Kganyago said the Bank expected inflation to return to the midpoint of its 3%-6% target band in the second quarter of 2025.

The prime lending rate has risen 475bps since November 2021 to 11.75%, which is 200bps higher than a few months before the Covid-19 pandemic erupted. That resulted in a 42% increase in monthly repayments for a 20-year home loan compared with November 2021 — bringing much distress to consumers servicing mortgages.

Business Day reported in May that SA’s four biggest banks had about R98bn in underperforming home loans, reflecting the effect of high interest rates on consumers.

More consumers have opted for debt review than before. Capitec, the country’s largest bank by customer numbers, has warned of debt counsellors placing consumers under debt review despite their financial position not warranting such action.

Sanlam Private Wealth has said the country’s most valuable bank by market capitalisation, FirstRand, has limited earnings sensitivity to interest rate cuts, resulting in a more stable net interest margin.

Sanlam Private Wealth argued that while other lenders might have performed better during the period of rising interest rates, the current environment positioned FirstRand advantageously. It estimates that, all things being equal, a one percentage point cut in interest rates could cause FirstRand’s headline earnings to fall just 2%, compared with 7% for Nedbank and 4.5% for Standard Bank.

Daehnke said Standard Bank was well positioned to benefit from the likely uplift in sentiment flowing from the elections, which led to the ANC entering into a government of national unity with the DA and several other smaller opposition parties, heralding a new political dispensation.

“It is still early days and we are still processing everything, but there is no doubt that this will boost confidence. It will also possibly move interest rate cuts further forward and that improves affordability constraints and should overall bolster credit disbursements,” Daehnke said.

The election outcome “is a positive development. It certainly puts us in a good position to monetise the opportunities we see in SA.”

Standard Bank has reported record profit over the past two years, returning nearly R50bn in the period. The lender’s headline earnings grew by low- to mid-single digits in the five months to end-May, according to its latest update, though currency movements relative to the rand — notably in Angola, Malawi, Nigeria and Zambia — had a negative effect. On a constant currency basis, the group’s headline earnings grew in the mid-teens.

Banking activities’ headline earnings grew by mid-single digits compared with a year ago.

khumalok@businesslive.co.za