[TOP STORY] PwC report reflects SA big banks’ good 2021 performance

‘I think our banking sector remains strong and stable…with the resumption of dividends to shareholders’: PwC’s Francois Prinsloo.

SIMON BROWN: I’m chatting now with Francois Prinsloo, PwC Banking and Capital Markets industry leader. Their [SA] Major Banks Analysis report came out yesterday afternoon. Francois, I appreciate the early morning. The key takeaway, and one of the top points you make is that the South African major banks have delivered really good performance against more supportive conditions. In other words, it was easier for them. The key point is that, okay, so it’s easier; but they had to deliver and truthfully they have.

FRANCOIS PRINSLOO: Yes, good morning, Simon. Thanks for the time. I think you are exactly right. I think what you’ve seen is a set of combined headline results now back at 2019 levels, which is certainly an impressive performance. Overall headline earnings grew 99% compared to the prior year. The banks have also collectively commented that the worst phases of Covid are probably over now from a severity perspective, and hopefully behind us.

I think if you look at the overall results, the critical movement is the almost 60% decrease in credit impairments, so I think that’s the single biggest contributor.

It’s perhaps not the end of it, but hopefully it’s the end of the peak.

SIMON BROWN: That’s what stood out for me. The impairments peaked at 180 points down to 74. I frankly thought the 180 points wasn’t so bad, considering the level of lockdowns in 2020. The banks really have managed their credit books incredibly well, truthfully, coming into the pandemic not anticipating it. But they really are managing those credit books, I think, incredibly well.

FRANCOIS PRINSLOO: Yes. I think you are exactly right. The books have been managed well. There’s been a significant focus clearly on collection, and the banks have also been quite adaptive in their risk appetite in terms of origination. So, if we look at the latest set of results, gross loans increased around 6.6% compared to last year, particularly in the secured products environment. We’ve seen significant growth in certain price brackets of home loans and vehicle financing, so I think it’s an indication of overall good credit management by the banks.

If you just look at the quality of the overall books now, it has certainly improved, evidenced by the decrease in the non-performing loan stock. So, if we look at the combined results, certainly a sort of healthy credit projection.

SIMON BROWN: The one feature of our banks – and this goes all the way back to the 2008 crisis as well – [they are] incredibly well capitalised, [with] capital adequacy ratios ahead of what requirements are. The short answer is our banks are strong. We’ve got lots to worry about in South Africa; our banks are not one of them.

FRANCOIS PRINSLOO: Yeah, certainly. I think our banks have performed very well. I think you’re right. From a regulatory environment they are well managed [with] strong oversight, and they’ve retained liquidity and capital levels at strong levels. So overall I think our banking sector remains strong and stable. We’ve seen that with the resumption of dividends to shareholders, which is good news.

SIMON BROWN: Yeah. No, absolutely. Shareholders are loving those dividends.

A last point. You make the point that we are kind of at the tail end of the pandemic, but there still are potential issues out there, concerns – the local domestic economy, global geopolitical tensions and stuff. It’s a bit rough for the banks as they come out of the pandemic. There are new issues. It’s not that the challenges have disappeared; it’s still going to be tough being a banker.

FRANCOIS PRINSLOO: Yeah, you’re right, Simon. I think from an economic perspective expectations certainly are that we are moving into a period of higher interest rates, which will have a contributing effect on inflation. We’ve already seen inflation trending up, globally oil prices are increasing significantly and, given South Africa’s reliance, this could have an in adverse impact on the economy.

But as the bounce back from lockdown comes to an end, South Africa is likely to sort of return to economic growth at a moderate level, to pre-pandemic levels.

As we know, the banks’ performance [isn’t] tied to the performance of the overall economy.

There are still some challenges, but I think the key comment is the banking environment is stable and the South African large banks are actually in quite a strong position.

SIMON BROWN: Yeah. That’s the key point. They’re stable, they are in a strong position. It’s tough out there, but it’s probably always tough out there.

Francois Prinsloo , PwC Banking Capital Markets industry leader, talking on their Major Banks Analysis which came out late yesterday.

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