Major banks analysis

Striving for growth in a challenging environment

The major banks delivered resilient earnings growth and progressed many key strategic initiatives in 2018. This was achieved against the backdrop of a relatively supportive global economic environment over the first half of 2018, which was offset by a weak South African economy in a technical recession during the same period, followed by a modest recovery over the second half.


April 2019 edition – The SA Major Banks Analysis identifies trends shaping the financial services landscape through an analyses of the combined local currency results of the major banks (Absa, FirstRand, Nedbank and Standard Bank).

A key theme that we continue to observe in the major banks results is the significant contribution from the banks’ operations in the wider African continent.

The major banks’ diversification strategies across franchises, regions and portfolios has been central to their ability to achieve growth amid difficult trading conditions over 2018. We expect the banks to continue to focus on the evolution of their strategies in the context of heightened competition and the digital journeys they are undertaking.

2019 is likely to be heralded as the year of the customer in South African banking, where three retail banking operations – TymeDigital, Discovery Bank and Bank Zero – will be launched, while African Bank, Sasfin and Bidvest Bank intend to focus on broader retail transactional banking offerings. Meanwhile, Capitec is acquiring a majority stake in Mercantile Bank, and Investec intends to reinvigorate its corporate banking offering. Across both retail and wholesale banking, the customer is poised to benefit from greater choice and increased competition.

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Key findings

Headline earnings

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.

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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.

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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.


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Non-interest revenue

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.


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Real GDP growth

Figure 1.1: Real GDP growth

Contact us

Costa Natsas


Tel: +27 (0) 11 797 4105

Rivaan Roopnarain

Associate Director

Tel: +27 (0)11 287 0915

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