Revenue tumbles at SA’s big banks
In 2016, SA’s six largest banks posted their weakest headline earnings growth since 2009, as returns fell on a higher cost of equity, increased expenses and negative loan growth in the rest of Africa.
In 2016, SA’s six largest banks posted their weakest headline earnings growth since 2009, as returns fell on a higher cost of equity, increased operating expenses and negative loan growth in the rest of Africa.
Barclays Africa, Capitec, FirstRand, Investec, Nedbank and Standard Bank posted combined headline earnings growth of 6.6% to R80bn for the 2016 financial year — much lower than the 16.5% growth achieved in the prior year, said EY.
“Revenue growth held up fairly well [last year], but increased funding and equity costs were partly responsible for declining returns. Investors are wanting a higher return from their investments into banks,” said Andy Bates, EY’s financial services Africa leader.
Lower lending in the rest of Africa had also led to weaker earnings, Bates said.
Banks had struggled in countries such as Nigeria — where a low oil price had caused significant economic distress — as well as in Kenya, where regulators had capped interest rates on loans, he said.
Banks’ total combined advances grew 4.1% in 2016 to R3.6-trillion, the weakest loan growth in five years and a function of loans in the rest of Africa declining nearly 11%.
Standard Bank, which derives 25% of headline earnings from the rest of Africa, reported a 15% decline in loans and advances from its Africa business. The bank materially reduced its exposure to sectors such as oil and gas and mining and metals last year.
Overall, earnings from corporate and investment banking divisions exceeded earnings from retail and business banking for the first time since the global financial crisis, as companies continued to invest despite the economic downturn.
Bates said while the macro environment had improved for banks in 2017, regulatory changes posed uncertainty. For example, the emergence of a conduct authority under Twin Peaks would increase banks’ compliance costs and could result in fines, he said.
Changes to financial reporting standards, whereby banks would have to take a view on lifetime expected losses from loans rather than actual losses, would lead to higher impairment charges, Bates said.