Major banks analysis

Standing firm against headwinds

South Africa’s major banking groups produced a credible set of results against various economic headwinds for the year ended 31 December 2016.


For two decades we’ve been taking the temperature of global CEOs through our Annual Global CEO Survey and asking business leaders about the trends shaping business and society. This year marked the 20th edition of the survey, which focused much of its analysis on how much the world has changed over this defining period. In last year’s survey, many global business leaders foresaw a world divided by multiple beliefs and frameworks. 2016 revealed the tangible ways in which these differences play out.

In fact, 2016 offered landmark moments which will be studied long into the future; moments which have the potential to reshape the global economic, political and social status quo. When world leaders met in January at the 2017 World Economic Forum in Davos, they raised concerns about uncertain economic growth, overregulation and skills shortages. Yet CEOs globally, on average, were optimistic about growth, and particularly confident in their company’s 12-month revenue growth prospects.

As always, the economic, regulatory and operating environment sets the scene for analysing the major banks results.


Key findings

Headline earnings

Within an eventful and turbulent operating environment, the major banks posted a credible set of results, with resilient earnings growth of 11% against 2H15, 8.9% against 1H16 and 8.4% on an annualised basis (FY16 vs FY15). Earnings growth continues to be underpinned by solid operating drivers and well diversified product sets across franchises. It reflects the major banks’ efforts to deliver on their strategic ambitions.

A key theme we have been tracking over recent periods and now clearly evident in the combined results is the sizeable contribution of the major banks’ African operations outside the domestic market. While relative rand appreciation during the period offset some growth in the banks’ continental operations outside South Africa, these operations accounted for approximately 13.5% of combined headline earnings at 2H16 (15.7% at 2H15).

Uncertainty related to the macroeconomic environment in the rest of Africa given low commodity prices, foreign exchange volatility and political uncertainty weighed down on the banks’ African operations outside South Africa.

View more

Credit growth

The tight credit environment that prevailed over 2H16 is reflective of ongoing stresses facing South African consumers, while business confidence levels remained subdued. Gross loans and advances grew by a lacklustre

0.7% against 1H16 and a moderate 2.1% against FY15. Consistent with our previous observations and expectation for 2017, combined credit growth for the major banks remains driven by corporate rather than retail demand. We have also observed that the number of clients in debt counselling continued to increase in FY16.

View more

Asset quality

Total non-performing loans (NPLs) continues to present a mixed picture, reflecting a 2.8% decline against 1H16 but increasing 4.5% against 2H15. As the trend driver, corporate NPLs showed a marked decline of 17.7% against 1H16, while retail NPLs (which still make up the vast majority of NPL stocks) grew 2.5% against 2H15, largely driven by the ‘other retail loans’ category.

Overall, NPL and workout strategies that the major banks continue to focus on have kept the NPL-to-total gross loans ratio at a steady 3.1% at 2H16 (3.2% at 1H16) – well below the 4% level last seen at 2H12, and comfortably below the elevated NPL levels seen in some international territories. Corporate NPLs worked out largely related to the mining and oil & gas sectors.

View more

Net interest income (NII)

The positive endowment impact resulting from the higher interest rates that prevailed over 2H16 continued to benefit the major banks’ NII, with the combined figure growing 9.9% against 2H15 (2.2% against 1H16) and by  a healthy 12.8% on an annualised basis. The major banks’ combined NII margin improved by 22bps to 4.61% at 2H16 compared to 4.39% at 2H15, reflecting an ongoing focus on appropriately pricing for risk.

View more

Non-interest revenue (NIR)

This was driven by resilient net fee and commission income growth of 4.6% against 2H15, and strong trading revenues. The major banks’ combined NIR showed broadly muted growth of 0.9% for 2H16 (contracting

1.9% against 1H16). Annualised growth in NIR was 5.4% (FY16 vs FY15). We observed continued strong growth in the relative proportion of non-interest revenue earned outside of South Africa.

View more


Ongoing focus on cost management remains a theme across the major banks’ results, reflected in moderate growth on the operating expenses line of 6.1% and 1.4% against 2H15 and 1H16 respectively. This was driven by double-digit growth in IT expenses as the banks continue to enhance IT resilience, upgrade legacy systems and enhance data requirements to ensure regulatory compliance.

On an annualised basis, operating expenses grew 9.2% and in some ways reflects the heightened inflationary environment that persisted over 2016. The combined cost-to-income ratio deteriorated marginally by 28bps to 54.36% against 2H15.

View more

Return on equity

On the back of resilient earnings, combined ROE grew by 18bps and 98bps against 2H15 and 1H16 respectively to a healthy 18.6% at 2H16. At the same time, the combined economic spread (ROE less reported cost of equity) improved to 4.1% from 3.6% at 1H16 (4.9% at 2H15) – a level well above many international counterparts.

The decline in the major banks’ combined economic spread *compared to 2H15 reflects increases in the cost of funding given the challenging operating climate and political events over the period that threatened the risk of a sovereign downgrade, which was eventually avoided for the time being.

Additionally, prudential liquidity changes would have contributed to funding demand, increasing funding costs.

However, as a more risk-reflective view of performance, the positive economic spread continues to reflect favourably on the financial health of the major banks.

View more

Although there are differences in the financial performance of the individual banks, the four major banking groups posted combined headline earnings of R72.3bn, up 8.4% on annualised basis compared to 2015.

PwC Major Banks Analysis report

Contact us

Costa Natsas
Tel: +27 (0)11 797 4105

Louwrens Van Velden
Associate Director
Tel: +27 (0)11 797 4189

Rivaan Roopnarain
Senior Manager
Tel: +27 (0)11 287 0915

Follow us