Although there were unique performances between the individual banks, on a combined basis the four major banks posted full-year headline earnings of R82.75bn, which grew 8.7% year on year (against FY17) and 5.1% against 1H18. The contribution from the major banks’ operations in key African markets outside South Africa continues to be notable – with the contribution to earnings from these territories now making up a significant proportion of overall group results, up to one-third of total earnings in some cases – in spite of the relatively stronger rand offsetting some of these gains.
Cost management and a focus on optimisation initiatives remained top of the agenda of almost all bank management teams as they balanced investment with growth in 2018. In spite of this, the current period continued the theme of ‘negative jaws’ (as total costs grew faster than operating income), which we observed at both June 2018 and December 2017.
At 2H18, the combined cost-to income ratio was 56.8% (compared to 55.1% and 55.5% at 1H18 and FY17 respectively). Consistent with our previous observations, staff costs comprise the majority of overall group costs, reflecting both the inflationary environment that persisted in 2018 as well as the demand for critical talent in response to increasing specialisation in the areas of risk, compliance and IT. At the same time, we continue to see increases in IT costs as the banks invest in their applications and systems infrastructure and further digitising their platforms.
Return on equity
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 (18.8% at FY17).
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.
Transactional volume growth supported by a sharp focus on digital strategies and richer mobile capabilities led to non-interest revenue growth of 4.6% against 1H18 (7.1% against FY17). There was also robust fee and commission income growth, which benefitted from strong electronic transaction volumes, and aided by the migration of customers to electronic channels
Overall market performance remained resilient despite the uncertain local macro environment, even though there was mixed results from trading revenue due to high levels of volatility in the market.