South Africa’s ‘Own Goals’ Seen by FNB Boosting Risks for Banks

South African banks face increased bad-debt levels and costs because of the country’s “own goals,” including power cuts and the threat of a ratings downgrade, according to the head of First National Bank, Jacques Celliers.

“What we mustn’t see is a downgrade, so everyone must do their part to not get this country into a downgrade,” Celliers, 43, said Wednesday in an interview at Bloomberg’s Johannesburg offices. “If we can just reduce the own goals, then it would be very good.”

Standard & Poor’s cut the nation’s credit rating to the lowest investment-grade level in June last year and Fitch Ratings has it on a negative outlook as a power shortage constrains Africa’s most industrialized economy. Downgrades would mean higher funding costs for banks, while consumers are bracing for an increase in interest rates as inflation accelerates, adding to the strain from higher taxes, power cuts and rising electricity prices. Fuel costs are rising for motorists after a dip caused by a drop in the price of oil.

“Our house view is that interest rates will go up slowly, unless there are unforeseen shocks,” Celliers said. “There are people out there who are still growing businesses, but people work harder for less money. When fuel comes back and interest rates go up, then I think we’ll see lots of exposure to those risks.”

FNB, as it’s known, is the consumer banking unit of FirstRand Ltd., Africa’s biggest bank by value. Celliers’ comments echo the views of Goldman Sachs Group Inc., which said in December South African growth was slowing partly due to “self-inflicted” wounds.

Indian Expansion

Colin Coleman, a partner at Goldman Sachs, said labor conflicts, energy supply disruptions and poor governance in the public sector were the “key” wounds that could be remedied.

While South Africa is mired in slow growth, estimated by the International Monetary Fund at 2 percent this year and 2.1 percent in 2016, FNB is opening its first branch in Guernsey next week and examining ways to expand in India and Africa, Celliers said.

“We had such a windfall on the one side with the fuel price, but then the lights don’t go on,” he said. “But we’re quite bullish. We’re on the front foot. We’re in a good space in the business. We’re very busy, and it’s good busy.”