SA BANKS UNCERTAIN ABOUT GROWTH
THREE OF SOUTH AFRICA’S Big Four banks – Absa, Standard and Nedbank – that have their financial year ending on 31 December 2008 recently released trading updates for the first nine months and prospects for the full year. These are best reflected in their own words: normalised headline earnings for the year are likely to be similar or slightly higher than for 2007. With the additional shares issued to ICBC in March 2008, normalised headline earnings per share for the year are likely to be lower than the comparative figure for 2007. with that of last year, despite challenging market conditions and the depreciation of the rand. Good income growth and well-controlled costs were broadly offset by increased retail impairment. headline earnings for the full year to 31 December 2008 to be at similar levels to those of 2007. In the case of FirstRand, the group’s profit growth for the financial year to 30 June 2008 has more than bogged down and fallen by 11%. Due to various uncertainties, management prefers not to make any future profit projections.
In plain language, all those trading updates are warnings that for the time being the Big Four don’t expect significant growth in HEPS. Until recently they were fully confident they could sustain profit growth of inflation plus 10 percentage points. Even if the mid-point between the inflation targets of 3% to 6%/year is taken as a basis, it still means expected profit growth of 15%/year.
That has now evaporated and investors should treat the shares of the Big Four banks, plus others in the broader financial sector, much more circumspectly.