Major banks analysis

Balancing resilience and growth

South Africa’s major banking groups produced a credible set of results against various economic headwinds for the reporting period ended 30 June 2017


This analysis presents the combined local currency results of South Africa’s major banks (Barclays Africa Group Limited, FirstRand Limited, Nedbank Limited and Standard Bank Group). Other major players in the South African banking market, including Investec and Capitec, are not included due to their unique business mix and reporting periods. The analysis aggregates the results of the major banks with a view to identifying common trends and issues currently shaping the financial services landscape.

Although there are differences in the performance of the individual banks, the four major banking groups posted a credible set of financial results against a particularly challenging operating environment, with combined headline earnings of R35.9 billion, up 3.8% from the comparable period (June 2016), but decreasing 4.6% against December 2016. 

Combined ROE grew by 25bps against June 2016 to 17.9%. The ROE experience of the individual banks in the current period is largely reflective of different experiences their lending portfolios demonstrate at different points in the credit cycle. Additionally, the impact that the major banks’ operations in the rest of Africa had on their earnings continues to be significant, but reflects the challenges of doing business in certain markets that some banks experienced, offset by a positive growth experience in others. Overall, the major banks’ double-digit ROE levels remain significantly above those of their global peers.


Despite the range of challenges and the degree of policy uncertainty currently facing the South African economy, the domestic banking system remains profitable, well-managed, robustly capitalised, and regulated in line with international best practice.


Key findings

Headline earnings

Despite the turbulent and challenging operating environment and subdued economic climate outlined above, the major banks produced a resilient set of results at 1H17, with earnings growth of 3.8% against 1H16, but decreasing 4.6% against 2H16.

The contrast in the headline earnings trend between these two periods reflects the manner in which the operating environment in these two six-month reporting periods impacted the major banks to varying extents, together with bank-specific circumstances playing out in the results.

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Credit growth

Given the depressed levels of business confidence that persisted over 1H17 across the retail and corporate sectors, the major banks’ aggregate credit growth was muted for the period. Gross loans and advances stayed largely flat against both 2H16 and 1H16, showing marginal growth of 0.9% and 0.7% respectively.

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Asset quality

The credit experience of the major banks, meanwhile, continued to reflect the disciplined approach to origination that they have adopted consistently over the years. Non-performing loans (NPLs) fell moderately by 0.5% against 1H16, but ticked slightly upwards by 1.9% against 2H16.

Balance sheet provisions followed this directional trend, falling marginally by 0.6% against 1H16, while showing slight growth of 0.9% against 2H16. The total credit coverage ratio similarly followed these trends, coming in at 66.5% at 1H17 (67.6% at 2H16 and 67% at 1H16).

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Net interest income (NII)

The net interest income line also reflected the challenges of the current operating environment and difficult macros of the current period, staying largely flat against 2H16 and showing moderate growth of 1,8% against 1H16.

On a positive note, the major banks continue to maintain a healthy net interest margin, which showed a 3bps expansion against 1H16, while expanding more moderately (5bps) against 2H16. This continues to reflect the banks’ efforts to appropriately price for risk in their portfolios, and is an admirable achievement in the current climate. Funding margins of the major banks have shared some level of widening as lending slowed.

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Non-interest revenue (NIR)

The major banks’ NIR continues to be primarily supported by growth in fee and commission income, which represents 71% of total NIR revenue for 1H17 (73% at 2H16, 70% at 1H16). Combined annualised NIR growth was 1.7% in 1H17 against 1H16 (3.7% against 2H16), largely on the back of growth in fees and commissions of 2.4%.

In a challenging environment that saw many retail banking customers transact within value bundles, this growth is a positive sign of healthy transaction volumes and may indicate that the banks’ focus on optimising and digitising electronic channels over previous periods is paying dividends.

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The combined cost-to-income ratio deteriorated to 55.6% as at 1H17 (2H16: 55.4%, and 1H16: 54.8%). The major banks continue to focus on managing discretionary spend, while managing structural cost programmes to realise efficiency gains that can be invested in growth initiatives.

This is the ninth consecutive reporting period in which the cost-to-income ratio remained in the 54%-56% range, highlighting the challenge to further contain costs in the current environment.

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Return on equity

Combined ROE grew by 25bps against 1H16, but contracted 73bps against 2H16, further evidence of the earnings challenge experienced by the major banks over the first six months of 2017. As always, the ROE experience of individual banks is reflective of different experiences their lending portfolios demonstrate at different points in the credit cycle.

In the current reporting period in particular, the banks took deliberate actions regarding their levels of credit provisioning to reflect their specific experiences of the current credit cycle.

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“In the short term the major banks remain cautiously optimistic about their prospects. However, focusing on innovation, investment in technological advances, and executing on their strategies will be critical for the banks to ensure they can mitigate forecast risk and contend with the difficult conditions that are likely to continue for the remainder of 2017,”

Johannes Grosskopf PwC Major Banks Analysis report

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