Local banks in better position than US and European lenders
INCOMING requirements of Basel 3 regulatory standards, together with the ill financial health of consumers arising from higher consumer inflation, might put renewed pressure on banks this year, financial analysts said on Friday.
Basel 3 is a global regulatory standard for bank capital adequacy ratios, stress testing and market liquidity risk.
The analysts said, similar to the 2008/09 global financial crisis, South African banks did better than their foreign counterparts in 2011 because they had stronger capital positions than banks in Europe and the US, where banks were reeling from weak property markets and heightened sovereign risk.
“Many banks have already needed to shore up their balance sheets by raising capital from shareholders (which is putting pressure on their share prices), with probably more to come. Our local banks do not have these capital-shortage issues, because of the resilience of the local property market leading to much lower writeoffs than in developed countries,” said Jean Pierre Verster of 36One Asset Management.
Faizal Moolla, a financial analyst at Avior Research, said local banks would remain in a better position as they had low exposure to dodgy sovereign debt so they did not need to take haircuts on any assets.
Moolla said the positive trend in advances showed stability in local banks. He said with the country’s production capacity at 85 percent, banks were likely to get more business from corporations.
“In South Africa we are expecting 3 percent growth in 2012 while in Europe the corporate segment is not as strong. Local banks have also taken a lot of cost control initiatives and if you look at their dividend yield, they are much more attractive,” he said.
Although local banks showed more resistance to the 2011 global markets turmoil, in its December quarterly bulletin, the Reserve Bank said the banking subsector remained subdued compared with other tertiary sectors of the economy that maintained robust growth.
But Stephen Meintjes, an analyst at Imara SP Reid, said this raised no fears or concerns. “The only concerns right now are on Basel 3 capital adequacy requirements which might affect bank earnings.”
André du Plessis, the financial director of Capitec Bank, said the banking market appeared healthier in 2011 as banks recorded credit growth.
He said even in the month of December, usually a quiet month, the level of activity was extremely high. “It (activity) was in line with what we anticipated. Another positive observation was that people who missed accounts were particularly good last year,” he said.
Du Plessis expected acceleration in 2012, especially in the growth of the unsecured lending market, while Meintjes said there should be improvement in advances issued by banks this year, and that conditions might be patchy on the investment front.
Verster said the state of the property market this year would be a key determinant of local banks’ performance.
“The implementation of Basel 3 is expected in the coming year, with some regulations probably being adapted specifically to the South African market’s unique characteristics.
“A deterioration in the financial health of the consumer, due to higher consumer inflation from a weak rand but subdued wage increases, could put renewed pressure on banks for the coming year,” Verster warned.
He said banks had been less aggressive in raising service fees and when combined with a slow environment for mergers, acquisitions and trading, this could make for a tough year. A STOKVEL in Kwazulu-natal found itself short of more than R60 000 when members went to withdraw the club’s annual savings from the Ithala bank’s Umngeni branch in Durban over the weekend.
The ukhozi Savings Club had saved about R373 000 with the development bank last year.
“We had saved this money for use in January so that we can be able to pay for our children’s schooling necessities,” said club member Thembinkosi Nxumalo.
He said the bank could only give them R310 000 and could not explain where the rest of the money went.
Nxumalo said he knew that his savings club was not the only club that was missing large amounts of money from Ithala.
“While I was at the bank, I witnessed a number of people complaining about the same matter. We (the savings club) have decided to investigate the matter independently,” he said.
Tozi Mthethwa, a spokeswoman for Ithala, said the bank had not heard of any other similar incidents. “We can confirm that we have received reports about the ukhozi Savings Club’s savings only. We understand that this is the first and the only incident to take place in our bank and we are dealing with the matter urgently,” Mthethwa said.
Ithala’s reputation has taken a heavy knock in the past, becoming known as a finance scheme for senior political leaders in Kwazulu-natal.
Mike Mabuyakhulu, the MEC for Economic Development in the province, stopped the bank from lending to government officials three years ago.
According the bank’s 2010/11 annual results, R54.5 million in bad debt had to be written off from its loan books. The office of the banking ombudsman could not be reached for comment. – Nompumelelo Magwaza