Ayanda Mdluli

Investment banking confidence has responded in kind to the deluge of depressed performance indicators in the economy, dipping from 82 late last year to 69 in July, survey results released by EY indicated.

The EY banking index for the second quarter (Q2) was conducted to measure confidence in the retail and investment sections of the banking industry with research conducted by the Bureau for Economic Research at Stellenbosch University.

Emilio Pera, the financial services sector leader for Africa at EY, said: “The slow economic growth that the country continues to endure provides an indication around the divergent confidence levels. The sluggish gross domestic product growth we have experienced over the last few quarters is impacting consumer spend more visibly.”

As a result retailers have struggled to grow their earnings, and retail banks have similarly competed more fiercely for new clients. However, the corporate sector had been more diversified in that it had greater exposure to earnings outside the country, Pera said.

Pera said bank confidence all round, in retail and investment, remained below its long-term average levels for the fifth consecutive quarter.

“It has been driven by very weak retail banking confidence, and despite a relatively buoyant investment banking landscape. While local growth prospects remain weak, we expect to see retail bank confidence continue to lag that of investment banks,” he said.

However, Pera suggested that the “local investment banking market has been less affected by the slow growth than what retail banks have been”.

He proposed that this was because local companies were seeking finance and other investment banking services from their local suppliers, whom they knew and with whom they had established relationships.

Also, strong equity markets have defied the weak economic fundamentals as the JSE continues to hit new record highs on a regular basis.

“Retail bank earnings and profits rose sharply in the second quarter, driven by the interest rate increase announced in the first quarter of the year. Investment banks also reported stronger interest earnings, but this was offset by falling business volumes, which hurt fee income flows,” he said.