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Analysis: EY say SA's big 4 banks profit growth continues to slow

By Kabelo Khumalo Time of article published Sep 12, 2017

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JOHANNESBURG - Analysis released by EY on Tuesday indicated that South Africa’s big four banks’ profits growth continued to slow in the first half of 2017, with overall banking profits growth slowed to 5.7% in the first six months of the year, the slowest pace of increase since the global financial crisis. 

EY’s Financial Services Leader for Africa, Andy Bates on Tuesday said that the weak profit growth is a result of weak revenue growth revenues having increased by a marginal 3% in the period - their lowest level of growth in 20 years.

“It is very difficult to grow revenue and profits when advances growth is in low single digit territory, which continued to be the case in the first half of 2017. Interest revenue was squeezed, which coupled with declining business volumes, also pressured fee income. Banks largely managed to offset this via strong cost containment, together with favourable impairment numbers,” says Bates.  

On Monday rating agency Moody’s said that South Africa’s low economic growth will weaken the country’s banks’ loan quality and profitability in the next 12 to 18 months, with rating agency maintaining a negative outlook on the country’s banking system.  

The Moody’s research note also indicated that it expects the country’s big banks’ credit risk profile to increase, with non-performing loans rising to around 3.5% of total loans by the end of 2018, from 2.9% in December 2016.  

Also read: What does Moody's negative look on banking mean for SA?

Bates said: “the pace of profit growth has been the slowest in seven years, and it could be argued that in real terms, the large banks are not growing. The latest gross domestic product (GDP) growth forecasts indicate growth of 0.6 percent for the year as a whole, so we expect nominal growth in the second half but in real terms, revenue and profit decrease.”

The Banking Association of South Africa (Basa) on Tuesday said that the Banks’ prospects are tied to those of the economy.  And the weak economy in which South African banks operate is a function of the weak leadership of the current government and the climate of policy uncertainty that reigns in almost every sector.  

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