SA banks able to register resilient growth in 2023, PwC report shows

SOUTH African banks’ headline earnings grew 13.8% last year despite difficult operating conditions and a complex macroeconomic environment, PricewaterhouseCoopers (PwC) Southern Africa said in report yesterday.

The report, PwC’s Major Banks Analysis, examined the results of Absa, FirstRand, Nedbank and Standard Bank.

The report showed combined headline earnings growth of 13.8% against 2022 to R113.2 billion with a combined return on equity of 17.6% – an increase from 17.1% the prior year.

Worryingly the credit loss ratio of these banks rose to 102 basis points (bps) from 82 bps.

PwC said: “In South Africa, credit impairments increased on a combined basis to the upper ends of ‘through-thecycle’ levels as credit models reacted to low growth, consumer pressure and the adverse effects of load shedding on South African households and businesses. Beyond South Africa, challenging fiscal positions and sovereign risks intensified in several other African territories in which the major banks operate, generating higher sovereign-related risk costs.“

Banks also saw a net interest margin of 458 bps an increase from 430 bps the prior year, cost-to-income ratio of 52.2%, down from 53% in 2022 and a common equity tier ratio of 13.2%, down from 13.5% the prior year.

Rivaan Roopnarain, PwC South Africa Banking and Capital Markets partner, said on the banks’ 2023 performance: “The formation of these results, enviable by global measures, coupled with solid growth momentum continues to demonstrate the underlying franchise strength of South Africa’s major banks.

“These results demonstrably reflect the positive portfolio effects of a diverse mix of businesses, together with the outcomes of considered strategic decisions taken and refined by management teams within a challenging operating context.”

One of the many factors that contributed to the banking groups’ growth were the elevated interest rates in the country.

“The combination of larger balance sheets, higher interest rates, strong levels of customer activity and transaction volumes underpinned robust revenue growth. In previous reports, we highlighted that the favourable endowment effects on interest margins would continue, which materialised in the major banks’ FY23 results as market interest rates remained elevated in response to inflation levels,” PwC’s said.

In a year of elevated inflationary pressures, a disciplined approach to cost control translated into a new record for the combined cost-to-income ratio of 52.2%, down from 53% the prior year.

Looking ahead to 2024, PwC said that the outlook was uncertain and complex.

“With a majority of the global population in an election year, the range of outcomes and implications for the global economy, policy decisions and societal impacts are wide. Scenario planning and the need to quickly position their businesses for the effects of global change was highlighted as a key area of focus by management teams in a highly complex and uncertain macro environment,” said PwC.

Costa Natsas, PwC Africa’s financial services leader, said: “These laudable results clearly reflect the portfolio effect of a diverse set of businesses and a balanced mix of earnings. While uncertainties will remain heightened in 2024 – across global, regional and domestic levels – South Africa’s major banks have consistently revealed themselves to be responsive, resilient and growing.”