‘The higher capital requirements anticipated by Basel III will take place
without significant difficulty or deterioration in regulatory capital levels.’
However, there is some uncertainty over key aspects of
the regulations, such as countercyclical buffers, domestic
systemically important banks surcharge and the finalisation
of the recovery and resolution regime that will affect the final
capital landscape.
It is also expected that all the major banks should be able
to comply with the Liquidity Coverage Ratio (LCR) envisaged
by Basel III requirements, supported by the committed liquidity
facility that the Reserve Bank recently announced it would
make available to mitigate potential liquidity shortfalls.
The most sensitive areas underpinning the results continue
to be the banks’ ability to grow revenue, contain their bad debt
charge and manage their cost base.
Total income, up by 12%, shows a focus on margin protection
and transactional revenues. Compared to the prior period,
banks’ operating expenses increased by only 1.5%, while
total operating income increased by 4.8%. Consequently, their
combined cost-to-income ratio improved from 58.1% in the
first half of 2011 to 55.9% for the same period of 2012.
Salaries, which continue to represent about half of the total
expense bill, grew at a rate of 12.6% in the first half of 2012,
when compared to the same period for 2011. This increase
reflects annual salary increases as well as the increased shortand long-term incentive awards associated with the improved
operating performance of the banks.
‘We have already seen that the next generation of productivity
improvements will come from responding to changes in
customer expectations by deploying strategic technology
solutions,’ PwC’s Grosskopf says. Leveraging distribution in
the world of social media will require making further
improvements in the use of customer analytics to unlock
value. The key is being able to integrate all the levers at the
banks’ disposal to further improve customer engagement.
These include rethinking product solutions in a Basel III world,
harnessing technology for customer convenience, optimising
internal centres of excellence and improving operational
efficiencies.
Total balance sheet impairments increased 12.2% to
R52 billion for the first half of 2012, compared to the amount
of R48.8 billion at the end of the second half of 2011. Total
income statement impairments increased 33.5% from the
first half of 2011 to R14.2 billion at the end of the second half
of 2012. Grosskopf points out that the banks have focussed
on their Non Performing Loans (NPL) portfolios and the
adequacy of their sp