ABSA, FirstRand, Nedbank and Standard Bank delivered better-than-expected financial performances in 2021 and might reach 2019 pre-pandemic earnings level this year, PwC Financial Services Industry Leader Costa Natsas said yesterday.
Interviewed at the release of PwC’s 2021 Major Banks Analysis, Natsas said if you were to ask him a year ago when he expected bank earnings to recover to 2019 levels, he would have said in 2023, perhaps.
Combined headline earnings of the major banks at R86.8bn had increased 99 percent in 2021 compared with 2020 and came in only slightly below the 2019 level, he said.
The main contributor to the rise in earnings was a 60 percent decrease in credit impairment charges after economies started recovering as Covid restrictions eased.
A further decline in credit impairment charges may occur this year, as banks had kept some provisions for the current uncertain economic environment, he said.
Last year, low interest rates had supported demand for prime-linked credit, including home loans and vehicle and asset finance.
This environment also provided an opportunity for households, businesses and corporates to service existing debt, which played out in the lower combined credit loss ratio of 74 basis points compared with 180 basis points in 2020.
Corporate and commercial credit demand also showed signs of recovery in certain key industry sectors.
However, commodity producers and other players in the commodity value chain used the higher commodity price context to optimise credit levels by re-paying facilities.
Natsas said that there was geopolitical uncertainty globally and the likelihood of rising inflation, but the banks were expecting improved trading conditions locally to continue for now, based on “doing what they are able to do.”
This was also in a context of increased competition from a range of fintech, telecom and other financial services providers, he said.
While the major banks results for 2021 largely reflected positive credit performance, underlying franchise momentum and heightened client transactional activity resulted in resilient pre-provision operating profit growth of 6.2 percent year-on-year.
Revenue pools from the broader financial services - including from insurance and asset and investment management - represented a growing contribution to banks’ non-interest revenue.
PwC Africa Banking Partner Rivaan Roopnarain said as the major banks double-down on their digital strategies, the next wave of cost reduction would mostly come from productivity improvement, digitisation and reshaping priorities, as opposed to more traditional measures such as reducing discretionary expenditure or optimising headcount.
Changes in the scope and delivery of financial services were unrelenting, particularly in Africa.
“Africa remains the world’s largest adopter of mobile money transfer systems, accounting for about 70 percent of global mobile money transactions and two-thirds of the world’s mobile money transaction volume by value, according to research by The Brookings Institute.”
The major banks’ foreign operations in the rest of Africa contributed 17 percent (2020: 21 percent) to total headline earnings, dampened by stronger relative performances from SA operations and rand currency strength.
edward.west@inl.co.za
BUSINESS REPORT ONLINE