It has been a bumpy few months for South Africa’s finance sector. In February its Competition Commission accused 17 local and foreign lenders of colluding to fix the price of the rand since 2017.
The following month, president Jacob Zuma sacked the country’s finance minister, sending the local currency to a 21-month low. Standard & Poor’s responded by cutting the government’s credit rating to junk status in early April.
The sovereign downgrade is tipped to hit South African banks’ returns and profits, and increase bad debts. Thankfully, the sector’s stalwarts are starting from a strong base.
The four biggest lenders have capital adequacy ratios of between 13.6% and 15.71%, and non-performing loan ratios well-under 4%. Their profitability, meanwhile, is staggering. Their return on equity (RoE), calculated by dividing pre-tax profits by total equity, far outstrips the 11.86% average of the world’s biggest 350 banks.
Standard Bank Group (Stanbank), the country’s biggest by assets and Tier 1 capital, has a 20.28% RoE based on $2.333bn in pre-tax profits. FirstRand is 30% smaller than Stanbank in terms of assets, but booked more pre-tax profits than its bigger rival in 2015. That gave it a whopping 31.17% RoE, up from 29.76% the previous year.
Barclays’ local subsidiary, which the UK bank is in the process of divesting, booked an impressive 21.2% RoE in its 2016 financial statements. It has narrowly outdone Nedbank, whose investment bank is dominating sub-Saharan Africa’s bond market, which recorded 18.64% the year prior.
All data sourced from www.thebankerdatabase.com
