19 April 2012
South Africa’s banking confidence has risen above its long-term average levels for the first time in over three years, and the sector looks set for sustained earnings growth, according to a survey by Ernst & Young.
Ernst & Young’s lead financial services director, Emilio Pera, said on Tuesday that it looked like South Africa’s banks had finally shrugged off the effects of the 2008/09 global financial crisis, with profit growth back at pre-crisis levels.
“Until the beginning of 2012, investment banking profits were erratic,” Pera said in a statement. “Despite not all business lines firing on all cylinders, there is a trend evident in profit growth which is looking positive.”
Strong turnaround in revenue, rising headcount
The survey findings include a strong turnaround in interest and non-interest revenue, sustained fee income growth for both retail and investment banks, and continued easing in credit impairments and losses.
Another positive indicator was continued growth in bank employee headcount. Despite recent rumours, South Africa’s banking sector was growing net employee numbers, rather than cutting back, the survey found.
Pera said the country’s banks had struggled to contain costs in the aftermath of the global financial crisis, given the regulatory pressures, IT systems enhancements and general inflationary pressures they faced.
It had taken a strong degree of focus from the banks to align their cost base with the slower revenue growth environment.
Banks ‘managing their costs carefully’
The recent reporting season indicated that South Africa’s major banks were all now managing their costs carefully, and as a result overall 2011 operating costs across the banking sector were only marginally ahead of 2010 levels.
“Banks nevertheless have certain unavoidable costs they have to endure, and we can see that in the first quarter’s survey results, with all banks in the retail segment experiencing upward cost pressure,” Pera said.
According to Ernst & Young, credit growth continues to strengthen, and is moving gradually upwards from low single-digit to high single-digit figures.
“Banks are particularly excited about prospects in select key segments, and are focusing their efforts to support those product markets,” Pera said.
“It is thus no surprise that confidence levels have risen as sharply as they did in the first quarter.”