Share

SA banks set to show malaise gripping economy

South African banks face another wasted year for earnings growth, as the euphoria that greeted Cyril Ramaphosa’s ascendancy to the presidency fades alongside the reality of challenges facing the economy.

The country’s largest lenders start reporting first-half results from next week against the backdrop of tax hikes, record petrol prices, stubbornly high unemployment and an economy that is showing little sign of recovering after shrinking in the first quarter.

While banks have been able to contain expenses and benefit from an improvement in loan collections to stay profitable, those are starting to wane in the face of muted credit growth.

"We have seen this for a few years now and most of the banks have been good on costs, but cost growth below inflation rates is not sustainable," said Jan Meintjes, a portfolio manager at Denker Capital in Cape Town. "Another year of poor top line growth could see the banks' earnings decline in 2019 as cost pressures mount."

Lingering uncertainty

Since taking over in February, Ramaphosa’s administration has struggled to escape the after-effects of his predecessor’s scandal-ridden tenure, and growth hasn’t exceeded 2% since 2013. And with uncertainty still lingering over policies around land reform and mining ownership, companies are holding off on making big investments and deals, suppressing demand for loans.

Banks need to grow loans, particularly in the retail segment of the market, said Patrice Rassou, head of equities at Sanlam Investment Management. Should there be a consumer recovery, lenders skewed toward retail banking like Standard Bank [JSE:SBK], Absa and FirstRand’s [JSE: FSR] First National Bank stand to benefit, he said.

Bank earnings on Absa is due on August 6, Nedbank is due on August 7, Standard Bank due to  August 16 and FirstRand September 6.

While South African bank analysts don’t do estimates for first-half earnings, FirstRand, the second-biggest bank, releases full-year results next month, which are expected to show a 6% increase in adjusted earnings per share, according to data compiled by Bloomberg.

The four dominant lenders are also facing increased competition from entrants such as Discovery [JSE:DSY], the country’s biggest health-insurance administrator, which plans to start offering banking services, using mostly digital channels.

Capitec Bank [JSE:CPI], the country’s fastest growing lender, was able to expand its share of the retail-banking market while the big four were too complacent to see the opportunity and too reticent to extend credit, said Asief Mohamed, chief investment officer at Aeon Investment Management.

Absa "faces earnings headwinds from weak loan growth and a rising competitive threat in South Africa that overshadow lofty growth ambitions to double in size outside the country," Bloomberg Intelligence analysts Philip Richards and Edmond Christou said last month.

The Johannesburg-based lender is seeking to regain market share and expand in the rest of the continent following a rebranding from Barclays Africa [JSE:BGA] and revamping its operations after Barclays cut its stake to below 15%.

While Nedbank’s first-half earnings will get a boost from a return to profit at Ecobank Transnational, the African lender in which it holds a 20% stake, the company’s own operations will probably only reveal low single-digit growth, said Denker’s Meintjes.

In the meantime, all they can hope for is a revival in South Africa’s economy.

"A rising tide should lift all boats," Meintjes said.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.0%
Rand - Pound
23.91
-0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
-0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders