Analysis of how major banks in South Africa have performed last year

27 May 2019 Consultancy.co.za

Following reports that the South African financial services firms ended last year with modest growth, new analysis from global professional services firm PwC has reported that the major banks in the country registered headline growth of nearly R83 billion. Average returns on equity have increased considerably.

South Africa’s financial services sector is undergoing significant transformations. The country is among the fastest growing Fintech economies in the world, and the country’s major banks have had to make drastic changes in order to remain competitive in an increasingly digitalised environment.

The country’s financial services sector is dominated by four major banking institutions, namely Absa, FirstRand, Nedbank and Standard Bank. All four have been contending with disruption from all directions in recent years, all while operating in a struggling economic environment.Key drivers of combined profit and lossThe biggest of these disruptive forces has been the rise of digital banking and competition from smaller Fintechs. Other disruptions have come from the regulatory domain, although the major banks have remained considerably resilient over this period. PwC analysis earlier this year revealed that the banks had registered modest growth last year.

In addition to this modest growth, however, the banks also diversified to some extent, drawing on trends in the global financial services sector. The Big Four accounting and advisory firm has now released the figures for this growth, and the results appear promising.

As per the firm’s analysis, all four banks combined had headline earnings of nearly R83 million, which represents growth of nearly 9% from the previous year. The growth over the course of last year was steady, which is illustrated by the fact that these earnings were at R45 billion at the halfway mark.ROE vs regulatory capitalAccording to the report, this growth is partly driven by the success of the major banks in foreign market. Within this sector, some of the major banks had a greater contribution to these earnings than others. FirstRand emerged as the strongest performer in terms of returns on equity (ROE).

“From a capital adequacy perspective, the major banks remain robustly capitalised, comfortably above regulatory minima across all capital tiers, while generating commendable returns. During the current period, combined ROE grew 10bps to 18.9% against 1H18,” the report states.

“Overall, the major banks’ double-digit ROE levels remain significantly above those of their global peers and continues to benefit from diversified operations and geographic locations,” it added. Current priorities in the South African banking sector have moved beyond the digitalisation efforts, and are focused on customer management.


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