Southern Africa: Choppy waters ahead for South African banks

South Africa’s biggest banks are also the biggest banks in Africa and so have already been considered in the overview. However, it is worth considering the general health of the South African banking sector before we move on to the state of banking elsewhere in Southern Africa.

A report by PricewaterhouseCoopers (PwC) that was published in mid-September revealed that South Africa’s four biggest banks had posted combined headline earnings of R27.8bn ($1.9bn) for the first half of 2014, up 13.1% on the previous year.

PwC head of banking and capital markets for Africa, Johannes Grosskopf, says: “Our banks have performed well. We have a stable set of results and some banks have outperformed others.”

Bad debt costs fell 9.6% and operating expenses rose 9.8%, so the overall picture was relatively positive but Grosskopf describes the operating environment as “difficult and considerably volatile” because of the general weakness in the South African economy.

He adds: “People are putting money in the bank and not just spending it. People are still buying cars and spending money at retailers. However, food retailers are being impacted by lower availability of credit. Other retailers have also been impacted by lower availability of credit.”

FirstRand’s net income for the financial year to the end of June reached R18.4bn ($1.3bn), up from R14.8bn ($1bn) for the previous year. However, FirstRand predicts more difficult domestic trading conditions in the future.

In a September statement, it forecast: “Economic headwinds are increasing. The group believes its franchises have the appropriate strategies in place to deliver good operational performances.” It described the domestic economy as “tough” and stated: “The earnings outlook is becoming relatively less certain.”

South Africa has seven banks in our Top 100, down one from last year because of the demise of African Bank, although it could figure in our table again next year if the proposed rescue plan is successful.

Of the other 16 Southern African members of the Top 100, seven come from Angola, fuelled by that country’s oil boom. However, the lack of transparency in that country’s economic dealings, combined with the lack of scope for private sector innovation, casts doubts on the ability of those banks to grow more broadly.

Another six are based in Mauritius, where they are making the most of one of Africa’s most stable economies and its emergence as an offshore banking centre; Namibia has two and Mozambique one.