A sector ripe for disruption
The sheer quantum of the banks’ profits is testament to the huge role they play in the economy
SA’S big banks have similar profitability, and there seems to be a relaxed attitude to competition among them. But this could be the last time the banking sector seems so tame.
With Discovery Bank launching before the end of the year and Bank Zero and Tymedigital gearing up, there could be some discomfort when the banks next report in March.
As far as earnings are concerned, bank fees are the industry’s soft underbelly. Johan van Zyl, head of Tyme’s major shareholder African Rainbow Capital, points out that SA banks earn 50% of their income from transaction fees, whereas in many other markets it is 10% or less.
In the six months to June there was a narrow band of growth, with headline earnings from Absa and Nedbank up 2% (excluding the recovery in Nedbank’s 20% share of Ecobank).
To be technically strict, it is accurate to say that Absa’s International Financial Reporting Standards earnings were down 4%, but some complex changes have been introduced, leading to noise.
Fund managers’ favourite Standard Bank was up 5%, a good result for CEO Sim Tshabalala and his strong team. Even Firstrand, which is consistently better run than its peers, had a subpar 8% increase in earnings for its year to June.
The sheer quantum of the banks’ profits is testament to their huge role in the economy. Nedbank, the smallest of the big four, had headline earnings of R6.7bn for the six months to June. Its annual profit is more than the market capitalisation of pharmaceutical giant Adcock Ingram. And Firstrand’s R26.4bn profit for the year is enough for it to buy back MMI.
There have been changes in market share, but the market has been carved up. Standard Bank has taken the largest share of mortgage loans; Firstrand, through its specialist Wesbank business, dominates vehicle finance; and Standard Bank, Absa and Firstrand each hold about a quarter of the card market, with some smaller banks handling the fourth quarter. But now, at last, competition is emerging from Capitec and African Bank in deposits and unsecured loans.
Regarding the banks’ market beyond SA’S borders, Firstrand has taken a different approach from its peers by investing in the UK. Standard Bank sold control of its investment bank there three years ago. But Firstrand has