BANKING NEWS
South African
News
A survey released by
Ernst & Young indicates
that banking confidence
remained strong through
the fourth quarter of 2012,
with confidence particularly
robust in the retail segment.
Bank
confidence
strong
despite
economy
THIS IS THE 44TH QUARTERLY survey conducted to measure
confidence in the banking industry. Emilio Pera, lead financial
services director at Ernst & Young comments: ‘Confidence
levels remain strong, despite very weak economic prospects.
Local and global uncertainty with weak growth prospects in
the Euro zone, and uncertainty in the USA in the run-up to
presidential elections, all contributed to very weak economic
activity in South Africa in the fourth quarter of 2012. GDP
growth slowed to 1.2% in the third quarter of 2012, considerably
below its long-term average rate of 3.2%, and substantially
down from the second quarter’s 3.4%. In such a low-growth
environment, both retail and investment banks struggled to
grow revenue streams. The slower growth environment resulted
in weak demand from the corporate segment, whilst retail banks
faced slower lending growth off an already weak base.’
Both interest and fee income growth slowed in the last
quarter of 2012 for retail banks. For investment banks,
income growth rose somewhat, despite weaker business
volumes. ‘Corporate demand for investment banking services
remains weak, as evidenced by weaker activity across the
core investment banking business lines,’ Pera comments.
‘This resulted in shrinking fee income, and in addition to this,
investment income also shrank for the third consecutive quarter.
As a result, overall earnings shrunk for investment banks in the
fourth quarter. Nevertheless they remain confident about
their prospects.’
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BANKER SA
Edition 5
OTHER SURVEY FINDINGS
Retail banks sharply increased tightening of credit, in line with
an uptake in credit impairments. The credit policy tightening
was confined to the household segment, while business banking
credit standards remained unchanged.
Both retail and investment banks reported a net decline in
employee numbers. In the case of retail banks, this was the
first time since third quarter of 2011 that banks reduced overall
numbers. Cost growth remained strong albeit softer for retail
banks than in the previous quarter, while investment banks faced
much more modest cost increases.
Pera further remarks on the credit tightening, ‘Investment
banks have had a relatively benign credit impairment
environment for a while, and this continued into the fourth
quarter. Retail banks, on the other hand, have had less than two
years of improving credit losses, and are again facing
a deteriorating credit quality scenario. We think this is at least
partially linked to concerns regarding recent rapid growth in the
unsecured lending market. In addition, the mortgage market
has not fully recovered, and banks remain cautious following
the losses they recently incurred in this segment. Given these
issues, banks are understandably cautious about the terms and
conditions under which they are willing to approve advances.
‘The banks expect the new year to remain tough, with revenue
growth anticipated to slow even more than it did in the fourth
quarter in both retail and investment banking.’