S.Africa’s major banks perform well despite industry headwinds

by Trust Matsilele 0

The country’s big banks, [DATA BGA:Barclays Africa Group], [DATA FSR:FirstRand Limited], [DATA NED:Nedbank Group Limited] and [DATA SBK:Standard Bank Group Limited] saw a combined headline earnings surge by 13.1 per cent for the six months ended 30 June 2014.

Capital markets expert says the positive results is a reflection of a healthy banking sector.

“Although the operating environment for the major banks remained difficult and considerably volatile on the back of macroeconomic uncertainty, the combined results for the current period continue to reflect the strength of the banking sector,” Johannes Grosskopf, PwC Banking & Capital Markets leader said.  

(READ MORE: S.Africa’s banks to expect tough times ahead: Moody’s)

The banking groups posted a combined headline earnings of 27.8 billion rand, up 13.1 per cent from the comparable period last year.

The banks’ total operating income increased by 9.5 per cent, compared to the first half of 2013.

According to the PwC’s ‘South Africa Major Banks Analysis: Stability amid uncertainty’ report that analyses the results of South Africa’s major banking groups, expansion into Africa remained one key trend among these banks.

“Expansion into the rest of Africa continues to be a key trend. Offshore expansion into Africa plays an important part in the growth strategies of the banks, with each bank taking a different approach,” Grosskopf said. 

The PwC report also identifies common trends and issues currently shaping the financial services industry, as it builds on previous PwC analyses over the last four years.

“Channel and product innovation remains high on the agenda of the major banks, with all of them highlighting the importance of driving more customers and delivering more mobile-based banking services,” adds Grosskopf.

(READ MORE: Innovation at the heart of S.Africa’s banking space)

Grosskopf says banks are increasingly focusing their efforts on customer-centric analytical tools to better understand clients and channel usage patterns, which can assist in building and improving customer relationships.

The banking groups reported a combined non-performing loans (NPLs) growth by 1.2 per cent for the first half of 2014.

According to PwC, this reversal in trend is reflective of both the consumer and business impacts of a turning interest-rate cycle.

The banks’ operating expenses increased by 9.8 per cent, while total operating income increased by 9.5 per cent to 124 billion rand. Consequently, their combined cost-to-income ratio deteriorated marginally to 54.9 per cent for the first half of 2014.

Grosskopf added that most banks are cautiously optimistic about their prospects in the short term.

“Investing for growth, while focusing on operating costs, remains a common theme for most banks. Those banks that continue to focus strategically on building their core capabilities, while continuously optimising all elements of human and economic capital, will emerge as key differentiators in a dynamic and evolving operating environment.”