Oh what a dull, decrepit time to be a banker, especially a banker in one of the big four.
Performance is a matter of the economy — banks’ businesses are so vast that they are stuck in the currents they find themselves in. About the best you can do is find ways to cut costs, with top-line revenue nigh impossible to grow in a market where no one wants to invest.
So the banks’ results for last year trickled out over the last two weeks and reflect an economy that grew just 0.8% in real terms or 4.8% nominally. Local growth for the big four banks was in the lower single digits on most metrics. For most, the top line was flat, with profits only nudged upward thanks to lower costs.
There are, however, some interesting areas of outperformance. Perhaps the clearest is FirstRand’s retail and business bank FNB. It managed to grow earnings 13% while delivering a market-thrashing return on equity of 42.2%.
FirstRand’s reporting cycle is six months out compared to the rest of the big four, so the figures are slightly flattered by a stronger second half last year. But only slightly. The return on equity figure is even more than Capitec’s, currently, the highest rated bank in the market (it earned a return on equity of 27% for the six months to August 2018).
FNB did it thanks to high efficiencies but also a big increase in personal loans which earn higher margins than other lending, growing 41% ( other banks’ personal loans also grew but not even at half that rate). FNB also grew mortgage advances faster than the market average at 6%.
Elsewhere, the stand-out feature was the contributions from rest of Africa. Standard Bank saw a lacklustre domestic growth in profits from personal banking of 3%, but rest of Africa quadrupled its personal banking profits to R817m. For the group as a whole, rest of Africa accounted for 31% of profits up from 28%.
At Nedbank, the group’s interest in Ecobank, long a governance and operational headache with a presence largely in West Africa, came to the rescue. It reversed a big loss the previous year into a contribution of R608m, helping profit growth to 14.5% rather than the 2.8% it would have been without it. At Absa, headline earnings for SA grew by 3%, but its rest of Africa business grew 10% in constant currency terms.