Good news for banks in South Africa

A recent analysis of South Africa’s major banks by financial services firm PwC shows that banks delivered a strong financial performance in the 2021 financial year with a 99% increase in headline earnings against the prior year.

“With more supportive conditions, the major banks delivered strong results on the back of a rebound in economic activity, increased client engagement levels and gains made through the execution of their digitally-centric strategies,” said PwC.

The report looked at the performance of Absa, FirstRand, Nedbank and Standard Bank in the 2021 financial year compared to the 2020 financial year.

PwC said that a 59.6% decrease in the combined credit impairment charge was one of the reasons for overall headline earnings to grow 99%.

“Underlying franchise performance across all areas of activity reflected a combination of strategic initiatives and heightened client engagement,” said PwC.

Significant markers of positive change across major banks:

• Combined return on equity [ROE] of 15.9% [FY20 8.3%]
• Net interest margin of 408 bps [FY20 387 bps]
• Credit loss ratio of 74 bps [FY20: 180 bps]
• Cost-to-income ratio of 55.8% [FY20 56.4%]

“While 2021 remained a difficult year for many South Africans, some stakeholders expect that the worst of the pandemic is now in the rear-view mirror.”

“Against relatively supportive conditions and deliberate management of risk appetite, the major banks’ results exhibit the strength and stability of the South African banking industry,” said Costa Natsas, financial services leader for PwC Africa.

PwC stressed that their research shows that observable progress has been made in getting economic activity back to pre-pandemic levels.

Many of the major banks shared optimistic outlooks for their short to medium-term expectations in 2022. They expect for pent-up customer demand to serve as the backdrop to supporting credit volumes which together with higher expected interest rates, will support margins and net interest income growth.

According to PwC, the banks are also expecting improved credit conditions to support credit loss ratios.

Key themes of 2022

PwC outlines some of its expected overall bank strategy themes to be:

• Integrating climate-related risks into lending policies and pricing strategies.
• Accelerating the “trust-building” activities to focus on addressing new client needs ranging from supply chain issues to facilitating the energy transition in a balanced and responsible manner.
• Optimising the business/service mix to help clients navigate the financial aspects of a energy transition.
• Bolstering third-party risk management frameworks and policies as partnerships are further developed.

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