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Johannesburg - With the South African economy steaming ahead, the country's banking industry is poised for further gains from new fees derived from granting corporate credit, making it an excellent investment.
So says Patrice Rassou, a portfolio manager at Sanlam Investment Management.
Rassou said: "When looking at banks as an investment opportunity, many investors focus on retail fees and interest rates, but more than half of a bank's business is actually from corporate credit.
"Given that many corporations are in 'borrowing mode' as part of the current fixed-interest boom relating to large-scale construction projects, South African banks stand to gain substantially on new fee revenue from corporate credit."
Rassou specifically singles out SA banks that offer investment banking advisory services and project financing as those that will benefit from the current infrastructure boom.
He adds that the issuance of corporate paper and bridge financing will also stand the banks in good stead as more infrastructure projects are initiated in the built-up to 2010.
"For example, investment banks like Rand Merchant Bank, Standard Bank and Absa will see a significant inflow of fees for arranging large-scale infrastructure funding through a variety of private-public partnerships."
Noting that they are currently trading at forward multiples of 10 times earnings, Rassou says local banks have been "beaten down", and while they may see a slight slowdown on the retail and consumer side of their business, the outlook for new fee income is quite positive.
"Corporate credit is expected to grow at 30% per annum in the next few years and with banks trailing the All Share Index since the beginning of 2005, South Africa's banks are expected to benefit accordingly."