| Banks bucked the trend in an otherwise weak market yesterday despite news of another cut in interest rates by the Reserve Bank. The 50 basis point cut takes the repo rate to 3.75% and the prime lending rate to 7.25%. While the news is good for consumers, falling interest rates have a negative impact on banks' earnings as the interest received on loans doesn't fully compensate for the increased costs associated with deposits and longer-term funding. The so-called endowment effect is countered to some extent by more affordable payment terms for borrowers, which could cushion their credit impairment ratios. Investec's full-year results, out yesterday, show a deterioration in its expected credit losses as a result of Covid-19. As advised by the local and UK prudential authorities, the bank has also held off on a final dividend due to the stress that could result from the pandemic. Afrimat has also held back on a final dividend for the moment and Hudaco says it's unlikely that it will pay an interim dividend due to the impact of Covid-19 on its businesses. Quantum Foods and SPAR have reduced their interim payouts. Read on for more on those stories, as well as all the latest mergers and acquisitions activity courtesy of DealMakers. Finally, with yesterday's interest rate cut by the SARB adding pressure to banks' interest income, Ingham Analytics' latest report "Say buddy, can you spare a dime?" considers some of the other risks facing the sector this year, including the recently announced Covid-19 loan guarantee scheme. You can find all the details down below. Have a good day and stay safe. Stephen Gunnion Managing Editor, InceConnect
Take a look at the latest Insights and sector reports From Ingham Analytics. In a 3,000-word Insight entitled "Say buddy, can you spare a dime?", Ingham Analytics analyses the banking sector in the context of the recently announced Covid-19 loan guarantee scheme. Are there pitfalls? If you're considering making an application through a bank, you'd benefit from reading what they have to say first. For banks, they say the scheme poses little direct risk, but it adds to their indirect risk and explain why. Ingham Analytics cautions that South African sovereign debt is increasingly priced for default - how does that impact the banking sector? There are informative charts too. Whether you are a shareholder or a customer these are things you need to know. Do you buy beaten down bank shares or stay clear? What about if you are a trader, is the volatility advantageous? "Poseidon and the other banking gods" by Ingham Analytics delves into the murky depths of banking in South Africa, the US and Britain. Are banking executives up to the task of managing COVID-19 economic upsets? This is more than just Greek mythology but as in mythology casualties do, and will, occur. One bank looks like a reasonable bet though. Amazon and JP Morgan in the same sentence - is there possibly a pair trade to take advantage of? | 