Covid-19 forces SA bank earnings to fall sharply in 2020-PwC
THE COMBINED headline earnings of South Africa’s major banks fell by 48.4 percent to R43.6bn in the 2020 financial year, says PwC.
THE NEED among the big banks to be agile and “speedy to market” through the Covid-19 crisis would not be a temporary phenomenon, PwC said on Friday in its Major Banks Analysis.
The combined headline earnings of South Africa’s major banks fell by a substantial 48.4 percent to R43.6 billion in the 2020 financial year due in main to the weak economy and considerable uncertainty following the pandemic.
“Our economics team expects the global economy to expand 4.7 percent in 2021, a forecast conditional on successful deployment of Covid-19 vaccines and accommodative fiscal, financial and monetary conditions,” the professional services and accounting firm said.
Some of the banks had cautiously indicated that they were hopeful to have seen the bottom from an earnings perspective, and early indicators from the first three months of 2021 showed “a sliver of positivity”, with increased client activity, retail credit collections and early-stage debt relief showing a few promising trends, PwC said.
However, and in spite of the consensus for uncertainty to prevail, characteristics that would support the banks’ earnings profiles and drive growth would be premised on a clear corporate and competitive purpose, a relentless mission to execute on strategy and leveraging technology and data-driven insights, PwC said.
PwC Africa’s Financial Services leader, Costa Natsas, said in a statement: “The severe disruptions and risks brought by the pandemic are clearly evident in the major banks’ results …
“The tragedy of numbers is they cannot fully capture the dire human, social and economic costs caused by the pandemic.”
Last year, anxious public health concerns related to Covid-19 and depressed business and consumer confidence levels combined to produce the largest annual fall in domestic economic activity in nearly seven decades, PwC said in an analysis of the results of Absa, FirstRand, Nedbank and Standard Bank.
Credit impairment charges soared relative to 2019, and were a main reason for the steep fall in combined headline earnings and returns, which now compare to 2012 levels.The combined return on investment fell sharply to 8.3percent from 17.9percent.
However, robust capital and liquidity positions with which the banks had entered the crisis were maintained above regulatory levels, providing risk capacity and supporting their ability to navigate turbulent operating conditions.
The flight to digital and mobile banking platforms, a trend that predated the pandemic, saw record volumes of banking transactions conducted through lower-cost digital channels across all customer segments in 2020.
The size, scope and configuration of the physical branch network was likely to change, but would continue to play their part in overall channel and distribution strategies going forward.
Early in the Covid-19 crisis, banks shifted strategy from managing profitability and delivering stakeholder returns, to managing operational stability and ensuring balance sheet resilience.
This resulted in technology infrastructure and customer service levels holding up without major incident in spite of a sudden pivot to remote working and strong demands on systems.
“The major banks’ trusted brands, geographic diversity and integrated and growing product set across the financial services spectrum aided their ability to demonstrate operational and balance sheet resilience through crisis conditions,” PwC said.
New ways of working and of doing business, tight cost control and a changing variable cost composition resulted in expenses being well-managed.
Broader change topics such as the sustainability agenda now featured prominently in the strategic thinking of the banks. The banks were seeking ways to adapt their business models to the changing operating environment, while also managing a dynamic risk environment.
Platform-based banking, increasingly led by digital channels, datadriven targeting and offering a multitude of applications, were likely to foster a new era in how the major banks delivered financial services.
BUSINESS REPORT ONLINE