South Africa's Big Four banks record growth in headline earnings

02 April 2018 Authored by Consultancy.co.za

On the back of strong growth in the banking sector across Africa, South Africa registered growth in liquidity over the course of 2017, according to analysis conducted by global professional services firm PwC. The conclusions are based on data from South Africa’s Big Four financial institutions, namely Barclays, Standard Bank, Nedbank and FirstRand. 

Over the last few years, businesses in South Africa have found little to be optimistic about. As an economy that is comprised of a large commodity trade, the country suffered from the global dip in the price of oil and minerals. To make matters worse, last year broke open a Pandora’s box of scandals, reaching far and wide into politics and some of the country’s leading financial institutions.

Amid this economic strife, one sector that has been registering growth every year is that of banking, albeit currently at the slowest rate since the financial crisis. The sector has issues of its own, which includes a dent in savings and incomes in correspondence with the GDP, as well as disruption from technological advancement and regulation, in correspondence with the rest of the world.

South Africa’s four major banking institutions had challenges last year as well. While struggling to restructure and transform their operations in line with the latest in digital technology, three of the four were forced to let go of their support from the consulting industry.

Regulatory Capital Ratios and ROEs

Following its involvement in a political scandal, management consultancy McKinsey & Company was first dropped by Standard Bank and Barclays, and subsequently by Nedbank, in attempts to dissociate themselves from the illegitimate financial activity.

According to the ‘Major Banks Analysis’ conducted by Big Four accounting and advisory firm PwC, all four still managed to achieve growth last year, having experienced a slight dip the year before that. Cumulatively, the major banks saw an increase of 5.2% in their headline earnings from 2016.

Another area where improvements could be observed was a significant decline in the bad debts account of the country, which brought about a conservative improvement of 3.6% in the operating income of the banks. Credit saw particularly slow growth over the last year, registering an increase of just 2.3%.

Among the big banks, performances remained at similar levels, with varying degrees of fluctuation between 2016 and 2017. One of the key metrics to determine performance in the financial sector is growth in the regulatory capital ratios and the level of return on equity (ROE).

Net interest margin and advances

In terms of ROEs, Barclays South Africa has remained relatively stable over the last year, although the ROE growth rate for the bank registered a small dip in 2017. FirstRand, meanwhile, has seen fluctuations over the last two years, seeing spikes in the first halves of 2016 and 2017 respectively, and dips in the second halves of both years.

Nedbank and Standard Bank also saw fluctuations in ROE growth rates, although both banks ended 2017 on a high, registering spikes in growth rates. In absolute terms, FirstRand saw the highest growth rates over 2016 and 2017, while the other three remained at relatively similar levels.

In terms of operating income, the net interest margins for Barclays and FirstRand remained the highest over 2016 and 2017, and the most stable at over R1 million. Nedbank and Standard Bank both saw increases over the two years, although Standard Bank saw a particularly strong jump in the second half of 2017, driven by increased external collaboration.

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