South Africa's big banks are expected to rake in more profits this year on improved economic and political sentiment.
Audit firm PwC said in its Major Banks Analysis on Friday that the country’s four major banks posted combined headline earnings of R76.1billion at December 31, up 5.2percent on an annualised basis and 11.6percent from the first half of 2017.
PwC said Barclays Africa, FirstRand, Standard Bank and Nedbank would continue to prosper on improved confidence in the country with Investec and Capitec also set to benefit.
Johannes Grosskopf, the financial services leader for PwC Africa, said this year started with a revived sense of optimism and a faith that improving levels of business and consumer confidence would translate into meaningful economic gains.
“For the short term, the banks remain cautiously optimistic about their prospects.
“Throughout 2018, we can expect to see a continued focus on cost management and ongoing investment in infrastructure, people and information technology systems,” Grosskopf said.
This week, Standard Bank hiked its medium-term return on equity target range after its headline earnings for the year-end to December surged 14percent to R26.6bn.
Barclays Africa this month said that its profits went up 14percent to R15.6bn, while Nedbank reported that headline earnings inched up 2.8percent.
South Africa's biggest market-by-market capitalisation, FirstRand, said this week that its earnings increased 7percent to R12.7bn over the six months ended December.
Matthew Pirnie, the primary credit analyst at Standard & Poor’s, said there was moderate risk appetite for the major banks, creating comparably low credit losses, and strong profitability.
“South African banks continue to perform well despite low economic growth and political instability,” Pirnie said.
“In the year leading to March 31, 2017, credit impairments improved to 1.26percent of total loans from 1.44percent, at the same time the sector’s total capital adequacy increased to 16.05percent from 13.88percent and return on equity improved to 17.33percent from 16.31percent.”
Outgoing FirstRand chief executive Johan Burger also became the latest captain of industry to pin his business's growth hopes on the elevation of Cyril Ramaphosa to the country’s head of state.
Barclays Africa has seen its share price surge 47.33percent in the past 90 days, while Nedbank added 49.01percent. The FirstRand share price spiked 35.63percent in the period and Standard Bank stock has been up 34.74percent.
The surge in banking shares has also aligned with the rand’s strength since mid-December.
Wayne McCurrie, a senior portfolio manager at Ashburton Investments, said South African banks were set for a stellar year.
“All South African banks should start to grow earnings in double digits later this year. Throw in lower interest rates, lower bad debts, better top-line growth, etc, and you can easily get there,” McCurrie said.