The head of SA's most valuable banking group has sounded the alarm on the government's soaring debt, warning that SA will go into default if it can't cut spending and borrowing costs - and noting that the market is already showing signs of stress.
FirstRand CEO Alan Pullinger said there is growing concern about the sustainability of SA's sovereign debt, and the worrying trend in the government bond yield curve needs to be closely watched.
He warned, too, that though banks have been buying government bonds while foreign investors were withdrawing and local institutions were reluctant, the banks could not carry on being the "backstop" forever.
Pullinger was presenting FirstRand's financial results for the year to end-June, which showed the banking group's earnings declined 38% to R17.2bn as it more than doubled its charge for bad debts.
In a year of two halves, earnings for the second half of the group's financial year, when the Covid crisis and the lockdown hit the economy, were down 78% on the same period last year - broadly in line with the trend at the other "big four" banks that reported for the six months to June.
Pullinger said he expects the worst is by no means over for the economy or for jobs.
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"There is some hope that the worst is behind us from a health perspective. But the economic story is still playing out," he said in an interview.
Businesses had been focused on the lockdown, hanging on and worrying more about health, but "now we are getting out of that phase into the brutal reality of what do we go back to. It's carnage," Pullinger said.
A lot of businesses are now looking at their balance sheets and starting to look at costs - and the group expects more jobs will be lost in the next six months.
A real recovery in the economy will take years, Pullinger said.
He urged the government to boost business confidence and private sector investment by rapidly implementing reforms to license businesses to generate their own power, allocate 5G spectrum and relax visa requirements to attract skilled professionals.
"Confidence is incredibly low and we need something to change that. We need to make SA investible," Pullinger said.
He appealed to the government to involve the private sector to enable delivery, saying the Covid crisis has shown how effectively the private sector can partner with the government.
He cautioned investors on Thursday that the Covid crisis will affect the group's performance for the rest of 2020 and said its focus will be on strengthening and protecting its balance sheet, to ensure it emerges stronger.
The group's corporate and investment banking arm, Rand Merchant Bank, reported an earnings decline of 17%. Its pre-bad-debt provision operating profit was up 14%.
At FNB, pre-tax profits declined 30%, mainly driven by an increase in bad debt provisions.
FNB CEO Jacques Celliers said the Covid crisis had been very tough for the bank and for its clients, but it had been a vindication of FNB's strategy and had expedited it. The bank provided targeted relief to customers with 600,000 credit agreements through its automated platforms. Its eWallet - which targets customers earning up to R36,000 and is SA's largest such product - saw a 30% increase in volumes for the year. The bank has now launched a virtual card.
