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Johannesburg - Confidence in the retail banking sector in South Africa is plumbing new depths lows, a leading banking survey has shown.
The 36th quarterly banking survey by Ernst & Young and the Bureau for Economic Research shows that retail banks' confidence slid from 62 index points in the third quarter of 2010 to just 38 index points.
"Retail banking confidence fell sharply in the fourth quarter, after previously seeming to be largely on the mend since the crisis," said lead banking and capital markets director at Ernst & Young, Emilio Pera on Tuesday.
The survey indicated that banking profits remain erratic, with no clear recovery trend after the global financial crisis.
Although banking confidence recovered since reaching an all-time low in the second quarter of 2010, the survey found that banking confidence remains far from its long-term average levels.
Average levels have been over 80 points since 2002, but levels have come down to hover around the 40 mark since late 2008.
The survey shows that investment banking confidence rose noticeably during the fourth quarter of 2010, although confidence levels have been largely erratic for over two years, with no clear trend evident.
Investment bank confidence readings moved from 33 index points in the third quarter to 47 in the fourth.
"It previously appeared that the retail banks were gradually recovering from the depths of the crisis, which hurt them hardest in 2009. The latest quarter's findings suggest that retail banks are still reeling from the impact of the crisis. Income remains pressured, coupled with rising credit impairments. Combined, these factors outweighed the positive force of rising credit demand," said Pera.
Pera said household debt ratios are the primary cause of slow credit growth, and corporate entities have also remained largely cash positive through the last two years, as uncertainty prevailed.
As a result, private sector credit demand remained weak. The second half of 2010 has seen some upward momentum in credit growth, but this has yet to result in sustained rising bank confidence.
"Recent global events continue to show how volatile the global financial system remains. Through the course of 2010, we have seen sovereign debt issues across the weaker economic members of the eurozone, coupled with the onset of 'currency wars', fuelled by quantitative easing in the US. Collectively, this has contributed to continued uncertainty in global banking markets," said Pera.
