Big SA banks stay resilient despite economic headwinds - PwC report

SA’s major banks delivered a resilient set of financial results for the reporting period ended 30 June 2018, despite various operating and economic headwinds that characterised the period, according to PwC’s Major Banks Analysis for 2018.

The analysis looked at the combined local currency results of Absa, FirstRand, Nedbank and Standard Bank, identifying common trends and issues currently shaping the local banking industry.

It found that the major banks have continued to spend considerable time and cost on their digital strategies. They refined and simplified products and enhanced their loyalty programmes in a focused effort to attract a greater share of "customer wallet".
Although there were divergent performances between the individual banks as at 30 June 2018, on a combined basis, the four major banks posted headline earnings of R40.4bn, which grew 12.1% year-on-year (y/y) compared to the first half of 2017 and 0.5% compared to the second half of 2017.

During the period, return on equity (ROE) grew by 15 basis points to 18.8% compared to December 2017 and 17.9% compared to 30 June 2017.

Total non-performing loans comprised 3.7% of gross advances at 30 June 2018 compared to 3% compared to both the first half of 2017 and the second half of 2017.

There was a reduction in net interest income of 0.5%, slower non-interest revenue growth of 2.4% and an increase in the impairment charge of 3.7% compared to December 2017.

Reflecting the banks’ focus on cost management, the combined cost-to-income ratio dipped to 55.1% at June 2018 compared to 55.8% and 55.5% at December and June 2017 respectively.

According to Costa Natsas, banking and capital markets industry leader for PwC Africa, overall, the positive contribution from the banks’ operations in markets outside SA fits in with core features of their strategies to diversify earnings geographically and strategically, as well as within their overall product mix.

This diversification strategy across their franchises, regions and portfolios now makes a broader positive impact in the major banks results, and PwC expects this to continue going forward.

Both locally and globally, there are a range of economic, competitive and wider social challenges that lie ahead which may directly affect the banking industry.

PwC's view is that leading banks will continue to focus on simplifying operating models and becoming more deeply connected to the customer and community, creating an ecosystem in a digitised and differentiated manner.

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