Publications
Partners
Johannesburg - Fitch Ratings agency said on Monday the outlook for South African banks in 2011 is stable, although it warned that subdued levels of economic activity will constrain earnings recovery.
In an outlook report, Fitch said it expects the major South African banks to continue to deliver acceptable core earning levels in 2011.
"However, earnings growth is likely to be constrained by elevated impairment charges, weaker revenue streams and muted loan growth," said Anthony Walker, senior director in Fitch's financial institutions team.
Although the agency expects economic activity to improve in 2011, supported by low interest rates and spending by key state-owned enterprises, these gains could be negatively affected by reduced export demand from certain European markets.
Fitch expects South Africa's gross domestic product (GDP) growth to be 3.4% in 2011.
"Given the challenges of a low growth and low interest rate environment, the major South African banks are expected to increasingly focus their attention on managing operating costs while revenues remain under pressure," said Walker.
"Credit growth in 2011 is expected to be slow as consumers continue to deleverage, although overall levels of consumer indebtedness are expected to remain high," he said.
The asset quality indicators of South Africa's major banks should begin to stabilise and improve on the back of improvements in retail asset quality and write-offs.
Fitch expects South Africa's inter-bank and wholesale funding markets to remain stable in 2011, assisted by foreign exchange controls, which provide a closed rand system with low levels of reliance on foreign funding to support domestic banking activities.
In anticipation of regulatory reform, the agency expects the major banks to continue to improve overall levels of capitalisation through the retention of earnings, assisted by low levels of credit growth which will constrain risk-weighted asset growth.
From a capital point of view, the sector appears well placed to comply with the Basel III international rules, Fitch said.
However, it expects there may be a need for structural reform of South Africa's funding markets to enable the sector to meet the Basel III enhanced liquidity requirements.
In an outlook report, Fitch said it expects the major South African banks to continue to deliver acceptable core earning levels in 2011.
"However, earnings growth is likely to be constrained by elevated impairment charges, weaker revenue streams and muted loan growth," said Anthony Walker, senior director in Fitch's financial institutions team.
Although the agency expects economic activity to improve in 2011, supported by low interest rates and spending by key state-owned enterprises, these gains could be negatively affected by reduced export demand from certain European markets.
Fitch expects South Africa's gross domestic product (GDP) growth to be 3.4% in 2011.
"Given the challenges of a low growth and low interest rate environment, the major South African banks are expected to increasingly focus their attention on managing operating costs while revenues remain under pressure," said Walker.
"Credit growth in 2011 is expected to be slow as consumers continue to deleverage, although overall levels of consumer indebtedness are expected to remain high," he said.
The asset quality indicators of South Africa's major banks should begin to stabilise and improve on the back of improvements in retail asset quality and write-offs.
Fitch expects South Africa's inter-bank and wholesale funding markets to remain stable in 2011, assisted by foreign exchange controls, which provide a closed rand system with low levels of reliance on foreign funding to support domestic banking activities.
In anticipation of regulatory reform, the agency expects the major banks to continue to improve overall levels of capitalisation through the retention of earnings, assisted by low levels of credit growth which will constrain risk-weighted asset growth.
From a capital point of view, the sector appears well placed to comply with the Basel III international rules, Fitch said.
However, it expects there may be a need for structural reform of South Africa's funding markets to enable the sector to meet the Basel III enhanced liquidity requirements.
