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SA's big banks stand firm amid volatility

Sep 15 2015 12:57

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FIRSTRAND LIMITED [JSE:FSR]

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NEDBANK GROUP LIMITED [JSE:NED]

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STANDARD BANK GROUP LIMITED [JSE:SBK]

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Cape Town - SA’s major banks remain resilient despite a challenging and volatile operating environment, according to research by PwC released on Tuesday.

“Overall the major banks continued to produce a strong set of results within a significantly challenging operating environment. This attests to the resilience and diversification of their revenue pools and their strong, established franchises,” said Johannes Grosskopf, banking & capital markets leader at PwC Africa.

“Expansion into the rest of Africa continues to be a key strategic objective, while all of the major banks focus their efforts on initiatives to invest in IT, infrastructure, systems and processes."

Almost all of the major banks indicated that they now have dedicated innovation resources and teams who tap expertise across the organisations to embed innovation as a business-as-usual priority.

At the same time, specific areas receiving attention include the banks’ responses to the rising threat of cyber risk and overall readiness for new regulation impacting risk data.

READ: Banking stock riddle baffles analysts

According to the PwC Banks Analysis, Barclays Africa Group [JSE:BGA], FirstRand [JSE:FSR], Nedbank [JSE:NED] and Standard Bank [JSE:SBK] posted combined headline earnings of R32.8bn, up 17.7% from the comparable period in 2014. Against this period, the banks’ total operating income increased by 8%, while operating expenses increased 9%. Growth in net fee and commission grew by 6.2% when compared to the first half of 2014.

“This is a remarkable achievement despite economic headwinds faced during the period and regulatory changes which include lower interchange fees, effective March 2015, and the continued migration of customers to cheaper digital channels,” said Grosskopf.

Net interest income growth of 9% benefitted from a continued positive endowment impact as the higher interest rate environment contributed to faster asset repricing relative to fixed-rate liabilities, equity and non-rate sensitive funding sources.

In spite of net interest income growth, an important theme that emerged in the current period is the relative compression experienced in the major banks’ combined net interest margin, which reduced by 13 and 30 basis points against the comparable period and the six-month period ended December 2014, respectively.

Banks’ operating expenses increased by 9%, while total operating income increased by 8% to R134bn. Consequently, the combined cost-to-income ratio deteriorated to 54.9% for the first half of 2015. Cost containment, therefore, continues to be a focus area for the banks.

A key factor driving rates of growth in the major banks’ gross loans and advances has been robust demand for bank intermediated funding by the corporate sector during the first half of 2015. However, from a retail perspective, growth continues to be lacklustre.

“In the short term the major banks remain cautiously optimistic about their prospects. However, focusing on innovation, strategy, proactive risk management and, importantly, their execution, will be critical for banks to ensure that they can mitigate forecast risk and navigate the headwinds and challenging conditions that are likely to prevail for the rest of 2015,” said Grosskopf.

ALSO READ: Capitec best, Nedbank worst bank on social media

barclays africa  |  nedbank  |  firstrand bank  |  standard bank  |  pwc  |  banks
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