SA’s major banks deliver strong financial performance – PWC  

In an analysis of the performance on major banks over the last year, PwC has reported that banks have navigated complex operating terrain in the first half of 2022 quite effectively.

Rivaan Roopnarain, PwC Africa Banking and Capital Markets Partner, explained that (armed with important lessons learned through the experience of the pandemic, and having refined overall bank strategies) the major banks spent the first half of 2022 focused on the customer experience through continued digitisation and on driving the efficient execution of priorities.

Major banks’ results highlights

PwC’s Major Banks Analysis highlights key themes from the combined local currency results of Absa, FirstRand, Nedbank and Standard Bank, and incorporates common strategic themes from other SA banks.

Headline earnings

As a result of strong transactional activity and revenue growth across product lines, industry sectors and banking franchises, combined headline earnings grew 19% against the first half of 2021 (1H21).

Those banks with large regional presences outside South Africa saw the benefit of geographic diversification — with banking operations in key African markets benefitting from the higher rate environment, a recovery in international trade and strong growth in trading revenues.

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For some of the major banks, headline earnings reached record levels. Strong balance sheet resilience across key capital, liquidity and provisioning metrics remained a consistent theme for all of the major banks. 

Asset growth

Comparatively improved household balance sheets, better consumer and business confidence levels and pent-up demand from the worst phases of the pandemic produced strong credit growth, particularly in secured portfolios including vehicles and home loan financing. Overall, gross loans and advances grew by 9.8%. 

Liquidity and funding

On the back of higher interest rates and better household and business liquidity levels, demand for term and savings products helped total deposits grow 9.7%. The combined loan-to-deposit ratio remained flat at 87%, while liquidity prudential ratios continued to be managed well above regulatory required levels.

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Credit quality

Throughout the worst phases of the pandemic, the major banks bolstered their reputations as strong risk managers. That theme continued as they managed risks judiciously during the period, with a bias towards credit quality.

The combined credit loss ratio (measured as the income statement impairment charge divided by average advances) fell by 5 bps to 77 bps (1H21: 82 bps). Total non-performing loans remained largely flat, comprising 4.6% of gross loans and advances (1H21: 5.2%), while provisions against these loans increased to 46.5% (1H21:43.8%). 

Costs

Combined operating expenses grew 8.2%, slightly above the 7.4% CPI recorded in June which represented a 13-year high in South Africa.

While tight management of discretionary spend remains a focus area for management teams, the combination of staff costs, technology related spend and a rebound in travel and marketing contributed to the major banks’ cost base.

Rising inflation has been experienced globally in recent months, driven by complex factors including supply chain disruptions exacerbated through the pandemic and the Russia/Ukraine conflict. 

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ROE and capital

The combined regulatory capital of the major banks had already surpassed pre-pandemic levels in the previous reporting period. That theme continued in the first half of 2022. The total capital adequacy ratio amounted to 17.1% (1H21: 16.9%), providing the foundation for continued investments and supporting healthy dividend payout ratios in the period.

The major banks’ ability to generate robust earnings while maintaining strong capital adequacy has long been a feature of the South African banking system. Combined ROE grew 150 bps to 16.9% (1H21: 15.4%). 

Francois Prinsloo, PwC Africa’s Banking and Capital Markets Leader, says the major banks delivered robust results for the period on the back of focused execution of strategic priorities by management teams.

“Supported by strong balance sheet metrics across capital, liquidity and credit provisioning, the major banks’ results reflect the benefits of underlying franchise momentum and management focus on strategy execution that is centred on enhancing customer experiences.”

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Outlook

The outlook for the second half of 2022 is expected to be volatile and uncertain. Geopolitical risks remain tense and acute, and will add to supply chain pressures in the developed world.

A dramatic rise in inflation coupled with recessionary risks across several economies is serving as the basis for the most rapid monetary policy tightening in decades. This fraught macroeconomic environment increases risk aversion in global financial markets and generates a material headwind for developing economies.

The International Monetary Fund forecasts 2022 global GDP growth of 3.2% and 3.8% in sub-Saharan Africa. African countries with elevated levels of dollar-denominated sovereign debt may face particularly challenging constraints.

In South Africa, persistently high unemployment, the path towards a political elective conference in December and electricity supply constraints all serve as the backdrop for continued uncertainty.