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South Africa’s major banks registered resilient growth against difficult operating conditions.

In 2023, South Africa’s major banks maintained resilient operating foundations and sustained their performance trajectory despite facing formidable trading conditions and a challenging macroeconomic landscape both globally and domestically.

PwC’s latest Major Banks Analysis Report, which centered on Standard Bank, Absa, FirstRand, and Nedbank, scrutinized their performance for the period ending on December 31, 2023. The repoert presents the highlights of the combined local currency results of Absa, FirstRand, Nedbank, and Standard Bank and incorporates key themes from other African banks.

The analysis also identifies common trends shaping the banking industry across all major players and builds on previous PwC analyses for a period of over a decade.

According to the report, the banks achieved a combined headline earnings growth of 13.8% compared to FY22, reaching R113.2 billion. The combined return on equity (ROE) stood at 17.6%, slightly up from FY22’s 17.1%. Additionally, the net interest margin expanded to 458 basis points (bps) from FY22’s 430 bps.

However, the credit loss ratio increased to 102 bps from FY22’s 82 bps. The cost-to-income ratio improved to 52.2% from 53% in FY22, and the common equity tier ratio settled at 13.2%, down from 13.5% in FY22. This feedback is derived from PwC’s report, which was compiled after the four largest banks in South Africa released their financial results earlier this month.

‘‘The formation of these results which are enviable by global measures coupled with solid growth momentum continues to demonstrate the underlying franchise strength of South Africa’s major banks.’’ Said Rivaan Roopnarain, PwC South Africa Banking and Capital Markets Partner

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‘‘These results demonstrably reflect the positive portfolio effects of a diverse mix of businesses, together with the outcomes of considered strategic decisions taken and refined by management teams within a challenging operating context.’’

The Big Four banks paid a combined R37.73 billion in direct tax in the first half of 2023 R2.45 billion more than the R35.28 billion paid in 2022. The report shows that the four banks paid a significant amount in direct tax, which is an important source of revenue for the South African government.

Standard Bank was the largest taxpayer, paying R12.72 billion in direct tax. FirstRand was the second-largest taxpayer, paying R12.59 billion. Absa paid R7.98 billion in direct tax, whilst Nedbank paid R4.43 billion.

The report states that the aggregated headline earnings of these four banks increased by 13.8% to reach R113.2 billion in 2023. PwC noted that their revenue was boosted by elevated interest rates, expansion of their balance sheets, and operational efficiencies resulting from the digitization of their services.

Gross loans and advances grew 6.6% against FY22 (and 2% against 1H23), well above the economic growth rates of South Africa and most markets in which the major banks operate while individual loan portfolios reflecting the strongest growth varied between the major banks and their geographies of operation, in general terms loan demand appeared softer in certain interest rate-sensitive portfolios such as home loans, vehicle and asset financing and personal loans as consumer debt sustainability concerns increased.

The elevated interest rate environment provided strong support to the major banks’ combined net interest margin of 458 bps, which grew 28 bps from 430 bps in FY22.

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‘‘It is clear from this set of results that in 2023, South Africa’s major banks continued to focus intensely on serving their clients, while leveraging their technology investments and customer-experience strategies. We continue to observe the quality of leadership teams and the ability of management teams to position their businesses to effectively navigate the complexities of macroeconomic events and a local economy under stress.’’ Francois added.

This growth remained underpinned by the strong operating franchises and high levels of brand resonance and customer trust engendered by the major banks in their markets of operation consistently over time.

The volatility in the market also proved advantageous for their trading revenues.

Despite the heightened risk environment, the major banks upheld robust balance sheets, exceeding regulatory capital and liquidity requirements. They made unprecedented provisions on their balance sheets in anticipation of projected risks.

‘‘These laudable results clearly reflect the portfolio effect of a diverse set of businesses and a balanced mix of earnings. While uncertainties will remain heightened in 2024 across global, regional, and domestic levels, South Africa’s major banks have consistently revealed themselves to be responsive, resilient, and growing.’’ Said Costa Natsas, PwC Africa Financial Services Leader.

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