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South African Banking Industry Sees Robust Revenue Growth Amidst Global Uncertainty

The major banks in South Africa have reported strong revenue growth for the financial year 2023, driven by a combination of larger balance sheets, higher interest rates, and increased customer activity.

Key Themes and Drivers

  • Favourable endowment effects on interest margins
  • Resilient demand for risk management products
  • Balance sheet growth to record levels, reflecting strategic efforts by management teams to offer customers convenience and competitive pricing

Risk Management and Credit Impairments

  • Risk costs in the form of credit impairment charges increased, driven by the current economic environment and informed by forward-looking risks in certain rate-sensitive loan portfolios such as home loans
  • Credit impairments increased on a combined basis to the upper ends of “through-the-cycle” levels

Geographic Diversity and African Operations

  • The benefits of geographic diversity continued to benefit the major banks through their operations on the continent, with record contributions from their foreign operations, particularly the contributions from their African operations
  • However, the nuances of doing business on the continent were also more acutely visible as political, fiscal, sovereign and currency risks were amplified in several African territories in 2023

Cost Control and Strategic Initiatives

  • A disciplined approach to cost control translated into a new record for the combined cost-to-income ratio of 52.2%
  • Key investments continue in talent retention and technology-related spend - consistent with the major banks’ strategic initiatives to enhance and digitise customer experiences
  • Emerging and rapidly advancing factors such as generative AI, climate change and complex socio-economic and geopolitical trends all continue to exercise the minds of bank management teams
  • These factors present both opportunities and risks, with the major banks generally adopting a responsive posture towards each, while maintaining a cautious eye on their varied risk management implications on overall bank strategy

Outlook for 2024

  • The outlook for 2024 is uncertain and complex, with the majority of the global population experiencing an election year, which may have far-reaching implications for the global economy, policy decisions and societal impacts
  • Scenario planning and the need to quickly position businesses for the effects of global change was highlighted as a key area of focus by management teams in a highly complex and uncertain macro environment.