SA lenders bank healthy profits

2012-10-24 19:43

Johannesburg - The South African banking sector remained stable in the six months to end-June‚ and is well placed to withstand vulnerabilities and future adverse shocks as profitability remains high‚ the South African Reserve Bank (Sarb) said on Wednesday in its September 2012 Financial Stability Review (FSR).

“Confidence in the financial services sector remained high but has still not reached its pre-crisis levels. The South African banking sector continued to post healthy profitability numbers‚ supported by generally improved quality of assets‚” the Sarb said.

“The sector also remained adequately capitalised in terms of the current minimum regulatory requirements. Although the banking sector’s total unsecured gross credit exposure increased further during the reporting period‚ it remained a relatively small portion of total gross credit exposure. The total credit exposure of the five largest domestic banks to counterparties with legal jurisdiction in Greece‚ Italy‚ Ireland‚ Portugal and Spain (GIIPS) remained insignificant.”

Unsecured lending rose by 20.9% year on year (y/y) in June 2012 to R381.8bn.

The exposure to the GIIPS has been reduced to only 0.112% in June 2012 from 0.13% in October 2011.

The biggest change in risk factors relative to the March 2012 FSR was an increased likelihood of analysts’ expectations that the euro would not survive in its current form. The risk of unintended consequences of Basel III had reduced.

The banking sector remains highly concentrated compared with other countries‚ as the market share of the top four banks (Absa‚ First National Bank‚ Nedbank and Standard Bank) hovers around 84%‚ with a marginal decline to 83.93% in June 2012 from 84.49% in June and 83.4% in September 2010.

Banking shares rose by 22.36% y/y in June 2012‚ while the sector’s capital adequacy ratio of 14.8% at the end of June exceeded the regulatory Tier 1 capital to risk-weighted asset ratio of 11.84%.

The level of impaired advances appeared to have peaked at R138bn in October 2010‚ at 5.95% of gross advances‚ and eased to R117bn or 4.46% in June 2012.

The high ratio of operating expenses to gross income remained a challenge for banks during the period and remained well above its recent average‚ although there was a marginal improvement in June. The improvement is due to cost cutting as banks retrenched and closed unprofitable branches.

The ratio of operating expenses to gross income remained in excess of 50% and amounted to 54.1% in June 2012 from 54.71% in May 2012 and 56.8% in June 2011.

Gross loans and advances were R2.615 trillion at the end of June 2012 compared with R2.362 trillion at the end of June 2011 and R2.313 trillion at the end of July 2010.

The Sarb said the ultimate objective of economic policy was to create a sustainable level of economic growth through investment‚ employment and production. This was best achieved when contributions were made from all sectors in the economy. Historically the financial sector has made substantial contributions to the level of economic growth. The responsibility for ensuring healthy contributions from this sector towards sustainable economic growth‚ are generally split between three parties.

Firstly‚ government's responsibility is to create a stable environment and infrastructure of legal rules and practice‚ and timely‚ accurate information‚ supported by regulatory and supervisory arrangements that help ensure constructive incentives for financial market participants. Success will promote growth and stabilise the economy on a higher growth path.

Secondly‚ the central bank is responsible for contributing to the achievement and maintenance of a stable financial system.

Thirdly‚ the environment and conditions created by the government and the central bank will enable the private sector to create economic growth through investment‚ employment and physical production.

For many years‚ central banks have focused primarily on their monetary policy (price stability) objective. However‚ the recession that began in 2007 has seen a rethink‚ with an increased emphasis on financial stability.

The increasing interdependence of economies and interconnectedness of the global financial system has led to significant financial stability initiatives. These structured initiatives have developed standards that are material to the strengthening of the global financial system.

The cost of the recent financial crisis has been significant. According to the International Monetary Fund‚ direct costs of banking crises in the past 15 years exceeded 10% of the gross domestic product in more than a dozen cases.

  • sycomachinery - 2012-10-24 20:09

    They are not profitable because they are good banks, the only reason they make money is because these thieves are allowed to raise bank fees, they would not last 6 months in Europe or America, they are hopelessly bad at banking.

      frank.carr.182 - 2012-12-05 10:14

      the other reason that banks make because Government,and the tax man make it mandatory to have a bank account. They can keep tabs on you that way. IE FICA RICA and all other traces.

  • kevin.pitzer - 2012-10-24 20:33

    Banks......Nothing but a legalised mafia 1

  • dee.bone.39 - 2012-10-24 21:32

    we'll sort them out next year. See if the ANC can protect them and their politically connected appointments

  • J.Stephen.Whiteley - 2012-10-25 06:42

    Unsecured lending up 20.9% up year on year (annual average of the last two years) !!! Even secured lending is dangerous at this rate. It is a mortgage on future productivity (usually an anuual growth in single figures) and a presumption on stable employment. Gaan hulle gek?

  • UNITY - 2012-10-25 07:27

    Why do foreign investors and banking groups such as barclays invest in the banking sector, bcos we have a lending system, that rips consumers off till they bleed dry! U borrow money, lending rate on a home loan or car is 8/9% on average.. When u use a credit card or budget facility...18-19%. Study UK and US banking systems.. They do not overcharge on interest or leave their consumers crippled in debt!!! Consumers cannot live under economic conditions where government regulates spending through taxes, tolls, electricity costs...and then there's the banks

      david.callanan.9 - 2012-10-25 08:04

      Interest rates are so high here because inflation is so high. If banks lowered their interst rates to European or US levels they would be making a loss on lendings because by the time you repayed your house or car the money wouldn't be worth what is was when they lent it to you...

      daleinn - 2012-10-25 08:55

      and were does inflation come from? increased taxes, tolls , fuel levies, electricity , transport costs, etc... people need to decide what value they want in life.. a stable living environment, or selling your house one day for more money , to buy a smaller one , cos inflation and debt ..has riddled your pockets.. who will worry what you are worth then?

  • SarelJBotha - 2012-10-25 10:17 Profits through unlawful debt and loans they do this all the time. Make no mistake, we will take them down. Creating "money" out of thin air and wanting repayment in real assets is wrong and must be stopped.

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