South Africa’s biggest banks are changing course – but economists are concerned

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South Africa’s largest banks successfully navigated the complex economic terrain in the first half of 2022, but the outlook for the rest of the year remains uncertain.

Financial services firm PwC said the country’s largest banks focused on the customer experience through digitization in the first half of 2022, and as a result, combined total revenues rose above pre-pandemic levels.

The major banks now collectively have more capital and risk provisions than ever before, which should help protect against the effects of economic headwinds in the second half of 2022.

This is one of the key findings in PwC’s Major Banks Analysis, which examines the combined local currency results of Absa, FirstRand, Nedbank and Standard Bank.

Supported by strong transaction activity and revenue growth across product lines, industry sectors and banking franchises, combined total profit grew 19% (R48.3 billion) year-over-year, PwC said.

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“For some of the major banks, total revenues hit record levels. Strong balance sheet resilience in key capital, liquidity and provisioning measures remained a consistent theme for all major banks.”

Banks with a large regional presence outside the country also saw the benefit of diversification, with some taking advantage of the higher interest rate environment, a recovery in international trade and strong trade revenue growth, the group said.

The upcoming months

PwC said the second half of this year is expected to be volatile and uncertain as geopolitical risks remain tense and acute.

The company added that a dramatic rise in inflation coupled with recession risks in several global economies is setting the stage for rapid monetary tightening in decades.

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In South Africa, persistently high unemployment, the path to a political conference in December and electricity supply constraints are all setting the backdrop for continued uncertainty, PwC said.

The country is also currently facing a possible gray list by the international watchdog, the Financial Action Task Force (FATF), which is a worrying prospect, PwC said.

The group said a gray list would lead to increased FATF oversight, heavier corporate and reporting requirements by correspondent banks, potential restriction on correspondent banking relationships and adverse effects on borrowing costs.

In a recent interview with the Sunday TimesFNB CEO Jacque Celliers said a possible gray list of financial institutions in South Africa would be another self-targeted target for the country.

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The government has until early October to prove to the FATF that it has taken into account its recommendations to close the loopholes in the economic and legal framework that have allowed money laundering and terrorist financing.

captaincy said the banking industry is taking active steps to work hand-in-hand with the South African Reserve Bank (SARB) in light of the potential greylisting.

The banking industry as a whole is committed to and aware of the new adjustments, improvements and additional requirements that are being introduced to reduce financial crime in the country, De Bruyn said.

“If it were to happen, we plan what impact it could have,” he said.


Read: What to expect from South Africa’s rate hike this week.

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