BRICS leaders at the G20 Summit in St Petersburg.
2012, the current period’s combined ratio further highlights the
strong capital positions of South Africa’s major banks, as the total
combined capital adequacy ratio strengthened from 14.9% for the
first half of 2012.
Growth in earnings was further enhanced by an increase in net
interest income of 11.7% and non-interest revenue of 6.4%. ‘The
banks have managed to continue growing their net interest margin
amid the stagnating economy, the low interest-rate environment
and changes made to the composition of the balance sheet,’ said
Johannes Grosskopf, Banking and Capital Markets Leader for
PwC Africa.
Growth in net fee and commission income was generally flat in
the second half of 2012, from a percentage of 9.3% in the first half
of the previous year, largely driven by an increase in transaction
volumes with limited price-increases. Banks are also using
electronic channels to drive transaction volumes.
The major banks reported that combined gross loan growth of
7.2% came primarily from strong corporate lending, card lending,
overdrafts, instalment credit and leases. Housing credit growth
continues to weaken (up 1.4% from 1H12 and up 1.0% from 2H12)
as consumers take advantage of low interest rates to repay debt.
Operating expenses increased by 6.6% to R61 billion compared
to the first half of 2012, while total operating income increased
by 9.0% to R108.7 billion. Consequently, their combined cost-toincome ratio improved to 54.1% for the first half of 2013 (56.5%:
2H12).
Cost control is an imperative for banks as they seek to reduce
their cost bases by 5% in each of the next two years, according
to PwC’s survey. Of particular interest is the continued significant
investment by banks in IT.
‘Innovation remains a priority for the industry,’ Grosskopf
commented. ‘The market has seen a number of new products
launched in an attempt to attract new customers to banks and
encourage them to use cheaper electronic channels, facilitating
less spend or investment in new and expensive branch
infrastructure.’
Salaries, which continue to represent roughly half of total
expenses, grew at a rate of 7.5% p.a.
Despite the challenging regulatory environment, the aggregated
ROE of the major banks is still strong at 16.1%, compared to
15.6% in the comparable period last year. However, this does
not reflect the different circumstances that exist at each of the
banks, in particular those with significant capital tied up in African
operations, where they are in the process of building businesses.
The average ROE compares favourably to that of the other BRICS
countries.
In the pursuit of growth, offshore expansion into Africa remains
very much in play, with each bank taking a different approach. ‘We
have seen an increase in reporting on the banks’ rest-of-Africa
operations, and it will be interesting to see more information as
strategies mature,’ said Grosskopf.
Banking groups’ results released in September revealed that
in the first half of 2013 Africa generated 9% of the FirstRand
group’s revenue and a quarter of Standard Bank Group’s revenue.
Co-CEO of Standard Bank, Ben Kruger, said in September that
Africa was the core of the group’s strategy; FirstRand CEO, Sizwe
Nxasana, said that the FirstRand group had set aside R10 billion
for its continued expansion into the continent.
US $100 billion capital for BRICS Bank
Russian President Vladimir Putin, who opened the G20 Summit in
September, announced that the BRICS forex reserve pool will be
capitalised with US $100 billion.
Russian Finance Minister, Sergey Storchak, said that the
BRICS-led New Development Bank would be functioning by 2015.
The bank will have an initial subscribed capital of US $50 billion
from the BRICS countries.
Russia, Brazil and India will contribute US $18 billion to the
BRICS currency reserve pool, China US $41 billion and South Africa
US $5 billion, according to a press release issued by BRICS.
However, it is possible that the bank’s structure and funding may
change in the future to include more countries. Minister Sergey
Storchak said at the G20 summit that the bank should reserve an
option to add new members.
‘The bank is being created not as a closed institution. The
countries that establish the bank will have privileges, but the
philosophy of the institution says that others could also become
its members,’ Storchak said. ■
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