Solid results from SA's 'big 4' banks, but digital rivalry heats up - PwC

Johannesburg - With the last of the ‘Big 4’ banks publishing their financial outcomes on Thursday, audit and advisory firm PricewaterhouseCoopers (PwC) said that combined, they represented “a solid set of results” with a joint headline earnings of R76.1bn through to 31 December 2017.

This figure is up 5.2% from the previous year and 11.6% from the first half of 2017, showing an improved performance in the second half of the year, according to PWC’s Major Banks Analysis Report, published on Friday.

The study examined the big retail banks; Standard Bank, Nedbank, Barclays Africa (soon to be renamed ABSA) and FirstRand (FNB). Capitec and Investec were excluded due to their different reporting period and structures.

PwC noted that the banks’ performance across Africa were resilient and allowed them to diversity their earnings and boosted overall group results.

Barclays Africa announced last week its intention to expand into Nigeria, Africa’s largest economy, under the re-named ABSA Bank.

Muted credit growth

PwC attributed net interest income as a key driver of earnings growth, which grew by 3.8% year-on-year.

“This is a credible performance given challenging market conditions over the period and particularly in view of the elevated levels of term funding, liquidity costs, and competitive funding pressures seen during 2017,” Banking and Capital Markets Industry Leader for PwC Africa Costa Natsas commented in a press statement.

Also contributing to the banks earning trends in 2017 was a decline of 8.1% in combined bad debts charge, largely due to resolving non-performing legacy loans and lower portfolio impairments. 

Average credit growth was muted in this reporting period due to “heightened political uncertainty, low GDP growth and subdued household and business confidence in South Africa”. 

Indicating the slight recovery in the second half of 2017, credit growth increased by 2.3% in the second half of the year, compared to the 1.7% uptick in the first six month.

Non-performing loans in the second half of 2017 grew by 2% against the last 6 months in 2016 which PwC described as a “disciplined approach” to extending credit.

Costly digital race 

The “Big 4’’ need to strike a balance between managing costs and investing in the digital race, with the launch of three new banks in 2018 - Discovery, Tyme and Bank Zero - who will focus on digital performance.

According to PwC, the major established banks had their combined cost-to-income ratio increase by 55.8% at the end of December, up from 55.6% in June 2017. This is the 10th year in which the cost-to-income ratio was between the 54%-56% range. 

The audit and advisory firm found that banks are reducing branch floor space and physical infrastructure while ramping up customer rewards programmes and cross- selling of financial services such as insurance. 

“A greater and increasing proportion of customers are now actively using digital channels as their primary banking preference”.

PwC expects banks to make increased use of ‘bots’ and artificial intelligence in the next few years with Nedbank leading the way with plans to install 200 software robots by the end of 2018. 

“For the short term, the banks remain cautiously optimistic about their prospects,” PwC commented about the sector which is largely dependent on the performance of the South African economy. 

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