Overall banking confidence is well below the long term average of 74 index points.
The multinational professional services firm EY attributed the decline to a significant 14 point fall in asset management confidence, which was previously much higher than retail banks’ confidence.
The combination of slower management fees and a net outflow of funds led to a considerable slowdown in total income growth for asset management firms.
While retail banks’ confidence has doubled within the last year due to an uptick in banks’ profits growth, it remained the weakest of the four financial services segments.
“Retail banking is at its slowest in the 12 years that we have been conducting this index. The low level of retail banks’ confidence is probably attributed to the strikes we had earlier in the year, the depreciation of the rand and subsequently, the fall of ABIL (African Bank Investments Limited) at the same time,” Emilio Pera, financial services sector leader at Ernst & Young, told CNBC Africa.
EY said that prospects for South Africa remain weak given the growth expectations to remain below two per cent for the full year. Also, consumer pressures, particularly at the lower income segment of the market, have limited retails banks’ growth opportunities.
“Even so, retail banks reported strong growth in the first half of the year, with interest income rising in double digit territory. To some extent, South African banks benefitted from growth in the rest-of-Africa, which helped offset the much slower local growth prospects,” said the firm in the FSI report.
(READ MORE: Bleak outlook for S.Africa's business confidence)
Pera added that South Africa’s four largest banks, Standard Bank, Absa, FirstRand and Nedbank, have all embarked on a strategy to expand their footprints into the rest of Africa.
“If you look at the overall profit from the [bank’s] African operations, it definitely has increased. It’s still a relatively small proportion of the profits but because of the growth in Africa, the banks are definitely seeing an opportunity for growth as part of their overall portfolio,” he explained.
Investment banking confidence however, which has remained higher than that of retail banks due to the positive outlook of the international economy, had weakened during the quarter given the tough domestic climate, resulting in a decline in business volumes.
“Business confidence remains weak by historical standards, even though it ticked up in the third quarter. Even so, less than half of all business is satisfied with prevailing business conditions. The manufacturing and vehicle sectors are particularly pessimistic about economic conditions,” continued the report.
(WATCH VIDEO: Q2 banking confidence in S.Africa weak)
On the other hand, life insurance confidence has strengthened in the third quarter due to a rebound in premium income and new business premiums.
“Slow GDP growth has not had a significant impact on life insurer earnings to date. Partly this is due to strong and rising stock markets, and partly due to premium growth holding up well, particularly at the higher end of the market,” the report said.