Johannesburg - Earnings of South Africa's banking sector could be dented if a tax under investigation by the International Monetary Fund (IMF) is implemented.
The tax is the brainchild of the G20, a committee of finance ministers and central bank governors, and is a means of recouping some of the capital pumped into the banking sector during the world financial crisis.
Credit Suisse Standard Securities (CSSS) said banks could see their earnings impacted by the charge. It estimated Absa could lose the equivalent of 7% of its calendar year 2009 headline earnings.
In comparison, FirstRand [JSE:FSR] could lose 6% of its last earnings, Standard Bank [JSE:SBK] 4.8% and Nedbank 2%, CSSS said.
There was limited clarity in terms of what parts of the banking businesses would be taxed and whether depositor levels and value of total assets would be used to calculate the final levy.
Said CSSS: "If implemented, it is not clear to what extent South African banks would be able to pass this cost (implemented as a tax or fee) on to customers, suggesting a negative headline earnings impact."
For banks with exposure to the European markets, this figure could be as high as 14%, but international analysts have pointed out that many of the economies are now recovering and the need for the tax is lower.
Patrice Rassou, portfolio manager for Sanlam Investment Management, said however that he did not believe a unilateral banking tax applied across the world was likely.
"Why would countries like Canada, China and South Africa tax their banks simply to be in harmony with the rest of the Anglo-Saxon world?" Rassou asked.
He warned that regulators locally and internationally needed to be cautious in their proposed implementation.
"There is a real risk that financial centres like New York and London could see an exodus of bank head offices if they tax banks which did not require a government bail-out," he said.
Internal challenges
While this potential tax may be a concern, the banks have their own internal operational challenges in the near term.
Stockbroker Imara SP Reid rated Nedbank as a "hold" owing to its underperforming retail banking division which "needed attention" and a new CEO, Mike Brown, taking the helm.
"Compared to some of its competitors and given the current challenges in the business, there are better value bank shares currently available in the market," said analyst Stephen Meintjes.
Imara SP Reid also upgraded its recommendation on FirstRand to "add" on the back of recent corporate action, which has seen the group looking to divest of its shares in insurance group Momentum by merging its activities with competitor Metropolitan.
Analysts at CSSS disagreed: "In our view, there are no near-term catalysts for the FirstRand share price to move materially from current levels before unbundling. We retain our 'underperform' recommendation, given the limited upside to the estimated pre-unbundling trading range."
- Fin24.com