Banking Industry Compliance Trends in South Africa: A Review of Major Banks’ Performance

The latest analysis by PwC reveals a resilient performance from South Africa’s major banks in the face of economic uncertainty and rising costs. The combined local currency results of Absa, FirstRand, Nedbank, and Standard Bank show robust revenue growth, driven by higher interest rates, strong customer activity, and increased transaction volumes.

Key Themes

• Revenue Growth: The favourable endowment effects on interest margins continued to support revenue growth, with market interest rates remaining elevated in response to inflation levels.
• Risk Management: Financial market volatility led to increased demand for risk management products, benefiting the global markets’ business units of the major banks.
• Balance Sheet Growth: Loans and deposits grew significantly, reflecting strategic efforts to offer customers convenience and competitive pricing.
• Prudential Measures: Capital and liquidity remained comfortably in relation to regulatory requirements, while balance sheet provisions grew in response to elevated credit risks.

Outcomes

Credit Impairments

Risk costs increased due to the current economic environment, with credit impairments reaching upper “through-the-cycle” levels.

Geographic Diversity

The benefits of operating on the continent continued to uplift group earnings relative to South African operations.

Cost Control

A disciplined approach to cost control led to a new record for the combined cost-to-income ratio of 52.2%.

IFRS 17 Implementation

The inaugural year of IFRS 17 implementation had a minor impact on net asset values but required significant operational and technical effort.

Outlook

The uncertain and complex macro environment will continue to exercise bank management teams in 2024, with emerging factors such as generative AI, climate change, and geopolitical trends presenting both opportunities and risks. Scenario planning and positioning businesses for the effects of global change will be key areas of focus in a highly unpredictable year. Despite these challenges, South Africa’s major banks have demonstrated solid operating foundations that will help them navigate the complexities ahead.