SARB Bank Data Review – positive trends in 2021

The SARB has published its banking sector data for December 2021, allowing us to perform a review of the years financial performance. This should provide some insight into the financial year end trends that will be disclosed by the major banks in March. Our key findings include:

  • Profitability as measured by ROE has improved significantly from 6.9% in Dec 20 to 13.8%. Despite this recovery it is still below the 14.4% in Dec 19. ROE’s have been under pressure since peaking at 18.1% in Nov 16. This is due to lower gearing as CAR ratios have risen from a low of 13.7% in Feb 16 to a peak of 18.9% in Oct 21 (driven in part by weak loan growth and dividend cuts post COVID-19).
  • ROA’s have improved considerably from 0.51% in Dec 20 to 1.1% in Dec 21, but well off the 1.35% peak in Jun 18.
  • NIM’s have recovered significantly from the lows in 2010 (improved credit pricing a key driver), but more recently have suffered from a declining interest rate environment, having peaked at 4.04% in Oct 18 and declining to a low of 3.7% in Jan 21. NIM’s have recovered to 3.8% currently and a further rise is anticipated given a rising Repo rate.
  • NIR as a % of total income has been on a downward trajectory from its peak of 51% in Sep 11. It’s currently 41.6% (41.4% in Dec 20) and reflects the following structural shifts in the industry: a lack of corporate deal activity in SA, a shift to cheaper digital channels, weak insurance revenues and rising lending margins. In absolute value terms, NIR is up a very modest 4% since Dec 18 compared to 12.1% for NII. Total income has grown 7.4% YoY – 8% from NIR and 7% from NII.
  • Cost:income (C:I) is on a rising trend having dipped below 50% in 2009 – it’s currently 58.2%. This is due to weaker revenue growth, structurally high staff costs and a sharp rise in Capitec’s C:I over the period (from c. 30% to 45%). Costs have risen 6.7% YoY, slightly below revenue growth resulting in a marginal C:I benefit. Rising inflation will keep the C:I elevated going forward.
  • Impaired advances (NPL’s) are down sharply YoY – from 5.2% to 4.4% of advances. Despite rising interest rates, a further drop is anticipated as this ratio was 3.9% pre COVID-19. Credit management has improved significantly given this ratio was at 5.8% in 2011.
  • We cover loan and deposit growth extensively in our monthly BA900 reports (Download Latest Report). Loan growth was 4.4% YoY compared to deposit growth of 5.6%. Loan growth continues to suffer from a sluggish economy with corporate lending and unsecured retail credit the categories showing the weakest growth. Loans as a % of deposits is at a decade low of 88.3%.
  • Total equity (or NAV) has shown robust growth of 8.4% YoY, in part due to a curb in dividends following the COVID-19 uncertainty.