Solid foundations, challenging conditions

South Africa - Major Banks Analysis | March 2024

Major banks analysis
  • March 25, 2024


PwC’s Major Banks Analysis presents the highlights of the combined local currency results of Absa, FirstRand, Nedbank and Standard Bank and incorporates key themes from other South African banks. The analysis also identifies common trends shaping the banking industry across all major players and builds on previous PwC analyses for a period of over a decade. 

Key themes

Key themes observed from this reporting period include:

  • The combination of larger balance sheets, higher interest rates, strong levels of customer activity and higher transaction volumes underpinned robust revenue growth. In previous reports we highlighted that the favourable endowment effects on interest margins would continue, which materialised in the major banks’ financial year 2023 results as market interest rates remained elevated in response to inflation levels. 
  • Financial market volatility increased on the back of elevated sovereign risks, significant movements in African currencies and severe geopolitical tensions. This combination of events sustained resilient demand for risk management products as corporate customers sought to hedge against turbulent foreign exchange, commodity and interest rate markets. Accordingly, the global markets’ business units of the major banks benefited from these events. 
  • Balance sheet growth — across both loans and deposits — continued on a purposeful path to record levels, reflecting the many strategic efforts and product decisions by management teams to offer customers convenience and competitive pricing. These included focused efforts to attract new customers, cross-sell and upsell strategies across the full range of financial services products. Accordingly, bank management teams focussed on generating more opportunities for customer activity through increasingly frictionless digital channels. 
  • The major banks’ key balance sheet metrics remained resilient, as management teams steered their portfolios of businesses to respond to market and operating dynamics. Prudential measures across capital and liquidity were maintained comfortably in relation to regulatory requirements, while balance sheet provisions grew in response to elevated credit risks in specific sectors and loan portfolios. 
  • Risk costs in the form of credit impairment charges increased, driven by the current economic environment and informed by forward-looking risks in certain rate-sensitive loan portfolios such as home loans. In South Africa, credit impairments increased on a combined basis to the upper ends of “through-the-cycle” levels as credit models reacted to low growth, consumer pressure and the adverse effects of load shedding on South African households and businesses. Beyond South Africa, challenging fiscal positions and sovereign risks intensified in several other African territories in which the major banks operate, generating higher sovereign-related risk costs.
  • The benefits of geographic diversity continued to benefit the major banks through their operations on the continent. The theme observed at 1H23 of record contributions from their foreign operations (particularly the contributions from their African operations) continued, considerably uplifting group earnings relative to their South African operations. However, the nuances of doing business on the continent were also more acutely visible as political, fiscal, sovereign and currency risks were amplified in several African territories in 2023. 
  • In a year of elevated inflationary pressures, a disciplined approach to cost control translated into a new record for the combined cost-to-income ratio of 52.2% (FY22: 53%). Key investments continue in talent retention and technology-related spend — consistent with the major banks’ strategic initiatives to enhance and digitise customer experiences. At the same time, volatile currencies in key African countries played out in translation effects, while higher foreign currency-denominated costs in technology and other areas drove higher operating expenses. These higher costs were however offset by favourable increases in revenues, which led to an overall minor reduction in the cost-to-income ratio.
  • 2023 was the inaugural year of the application of IFRS 17, a new accounting standard dealing with the measurement of insurance contracts which required the restatement of results. While the overall quantitative impact of the standard was largely insignificant measured against the net asset values of the major banks, the operational and technical effort to implement its requirements was intense. 
  • Emerging and rapidly advancing factors such as generative AI, climate change and complex socio-economic and geopolitical trends all continue to exercise the minds of bank management teams. These factors present both opportunities and risks, with the major banks generally adopting a responsive posture towards each, while maintaining a cautious eye on their varied risk management implications on overall bank strategy. 
  • The outlook for 2024 is uncertain and complex. With the majority of the global population experiencing an election year, there is a wide range of possible outcomes and implications for the global economy, policy decisions and societal impacts. Scenario planning and the need to quickly position their businesses for the effects of global change was highlighted as a key area of focus by management teams in a highly complex and uncertain macro environment. 

Despite slow growth conditions in South Africa and the challenging macroeconomic environment that prevailed globally, regionally and domestically throughout 2023, South Africa’s major banks' results exhibited their solid operating foundations.

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Francois Prinsloo

Francois Prinsloo

Director | Banking and Capital Markets Industry Leader, PwC South Africa

Tel: +27 (0) 11 797 4419

Rivaan Roopnarain

Rivaan Roopnarain

Director | Banking and Capital Markets, PwC South Africa

Tel: +27 (0) 11 287 0915

Costa  Natsas

Costa Natsas

Director | Financial Services Industry Leader, PwC South Africa

Tel: +27 (0) 11 797 4105