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South African Banks Are Reining in Loans

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South Africa Commercial Buildings
  • South African Banks Are Reining in Loans

South Africa’s four biggest banks, pummeled by political wrangling and enmeshed in the country’s economic malaise, are increasingly shying away from their main role: lending.

“Credit extension is going to be low for the next two to three years, unless we see some real recovery in economic growth,” FirstRand Ltd. Chief Executive Officer Johan Burger said by phone from Johannesburg on Thursday. “South Africa’s growth prospects remain weak and uncertain.”

Banks are reining in lending as President Jacob Zuma’s administration struggles to reignite growth in the continent’s most industrialized economy and cut unemployment, which has reached a 14-year high. Business confidence is at its lowest level since 1985 in the wake of efforts to diminish the central bank’s independence, eight failed opposition attempts to unseat Zuma and confusion over new mining rules.

FirstRand, the continent’s largest lender by market value, on Thursday reported net interest income growth of 7 percent for the 12 months through June compared with an increase of 18 percent in fiscal 2016. Standard Bank Group Ltd., Barclays Africa Group Ltd. and Nedbank Group Ltd. all published first-half results in August that showed a similar pattern. While earnings are still increasing, helped by cost-containment and lower impairments, it’s getting tougher to keep the momentum going.

Increases in revenue will be muted over the next 12 months as lending slows, said Adrian Cloete, banks analyst at PSG Wealth in Cape Town. While the lenders aren’t expected to slump into losses, earnings growth will be “at a lower rate than the last few years,” as improvements made in bad debts turn into a “headwind,” meaning costs will have to be reduced, he said.

FirstRand doesn’t expect to see improvements in impairment levels and is focusing on expanding smaller parts of its business like insurance and investment management to diversify earnings, the CEO said. “When you don’t have a lot of top line growth, cost management becomes critical.”

A 25 basis-point interest rate cut by South Africa’s central bank in July won’t be enough to kick start a big improvement in lending, Burger said. That month, policy makers reduced the benchmark rate for the first time in five years, projecting the economy will expand 0.5 percent in 2017.

S&P Global Ratings and Fitch Ratings Ltd. cut the nation’s foreign-currency credit rating to junk in April after the president fired his respected finance minister and replaced him with someone with no financial experience. A succession battle within the ruling party over who will succeed Zuma as president of the African National Congress in December has also spurred infighting and hindered the delivery of government services.

It’s only a matter of time before local-currency debt is slashed to junk, according to Adrian Saville, chief executive officer of Cannon Asset Managers in Johannesburg, which will further burden the banks as their cost of funding rises.

To counter that FirstRand is going to “try and pierce the sovereign ceiling” by building access to offshore funding so it doesn’t need to rely on the South African government’s credit rating, Burger said. For confidence and growth to return, the country needs ethical leadership, policy certainty and careful fiscal management, while issues such as the skills shortage, improving education and making it easy to do business also need addressed, he said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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