AS THE year draws to a close, South Africa’s biggest banks say they are lucky they have so far not taken drastic action similar to that by some of their global peers in order to revive stalled growth.
Global banking groups such as UBS, Citigroup and Barclays have endured the indignity of retreating from markets and operations to protect revenue amid tepid growth. They have also been cutting costs through retrenchments and selling noncore units to shrink balance sheets and comply with the Basel 3 capital and liquidity ratios.
Some observers say their actions reflect a sense of panic about the prolonged slowing global economic recovery, and the effect on their business of demands by regulators that they hold higher capital buffers to protect balance sheets from rogue behaviour or unexpected financial shocks.
Local bankers say they have a different worry: how to use cash-flush balance sheets to expand earnings, improve muted loan growth and also deal with renewed regulatory pressure as the government tightens oversight over the financial sector.
Sim Tshabalala, a deputy CEO of Standard Bank Group, says he is concerned about the effect on business growth of a slower economic growth rate next year.
"We are very hopeful that it will be a better year than 2012 for the banking industry," he says.
Nedbank CEO Mike Brown says the macroeconomic outlook is not rosy and has not been helped by the crisis in Europe and slowing growth in countries like China.
"The toughest challenge remains the uncertain global economic environment and its effects on our economy," Mr Brown says.
He says particularly worrying is contagion of the South African economy by the "seemingly neverending issues" in Europe where many economies are in recession, the looming fiscal cliff in the US and the slowing Chinese growth. These factors can affect growth in South Africa, leading to slower job creation.
Despite the problems, South African banks have so far managed double-digit earnings growth, which analysts say they achieved even during the height of the last credit crisis.
But the analysts say the question is whether this performance can be sustained in future.
Banks, who are aware of the effect of unchecked loan growth on impairments, have until recently been expanding into the unsecured market. But the pace is slowing down as the government raises a red flag over high consumer debt.
Banks have also innovated by repricing new mortgage and vehicle and asset finance and implemented hedging strategies to protect balance sheets from the negative endowment effect of low interest rates. Bankers say they will continue with these strategies next year, although they admit revenue growth could be tough to achieve.
Johann Scholtz, head of research at Afrifocus, says investors should temper their optimism about some banks achieving double-digit earnings growth next year or even beyond, as they might struggle to expand loan growth.
"It is going to be a challenging environment for the banks to grow lending on the retail side," Mr Scholtz says.
He says pressure applied by the government on banks to cut fees will reduce noninterest income growth. Standard Bank has already announced it will not increase fees next year for the second year in a row, as an example.
"In the current uncertain global economic environment strong revenue growth will be challenging for most banks globally," says Adrian Cloete, an equity analyst at Cadiz Asset Management.
"Competition in retail banking with respect to fees on transactional banking has also increased recently, with banks trying to entice new customers," Mr Cloete says.
First National Bank CEO Michael Jordaan says bank earnings are likely to come under pressure next year.
"In South Africa, banks will be affected by the continued unemployment crisis, heightened by the strike action we have seen in the last few months, and the significant slowdown in gross domestic product growth," Mr Jordaan says.
The downside risks for banks will remain should the economy slow further, he says.
Bankers also fret about additional financial and nonfinancial regulations.
"Regulatory changes continue to demand significant time and focus. Examples of this include Basel 3, (the) treating customers fairly (policy and the) twin peaks legislation," says David Hodnett, Absa’s group financial director.
Mr Tshabalala says over the past two years, banks have faced nearly 100 new proposed policies, laws or regulations. "Each creates new regulatory requirements that in turn mean that systems must be altered, forms must be redesigned and reprinted, staff must be trained, and customers need to be kept informed," he says.
Mr Brown says Basel 3 capital and liquidity rules are "top of mind" issues at Nedbank.
"We are well positioned for the capital issues under Basel 3 and have already done our parallel runs of all the new regulatory returns required for Basel 3," Mr Brown says.
"Our common equity tier 1 (ratio) on September 30 was 10,7%, already well above the future Basel minimum (requirements). We will continue to build our liquidity buffers in response to the 2015 requirements for the liquidity coverage ratio," he says.