Big South African banks are expected to show scant underlying growth when they report first-half earnings in coming weeks.
Big South African banks are expected to show scant underlying growth when they report first-half earnings in coming weeks, as a decline in bad debts largely fuels improved results.
Standard Bank, Absa Group, Nedbank and other banks in Africa’s top economy have yet to make a convincing recovery after a 2009 recession squeezed corporate demand for credit and sparked a surge in job losses and household debts.
While bad-debt costs are receding, demand for loans remains weak and lenders still struggle to rein in costs. Any uptick in earnings, analysts say, is unlikely to be a sign of real, underlying growth.
“The unwinding of bad debts is probably going to be the biggest supporting factor for earnings across the board,” said Johann Scholtz, a banking analyst at Afrifocus Securities.
Nevertheless, investors will be closely watching for signs of improvement in net interest income and non-interest revenue, he said.
Net interest income, a gauge of earnings from lending, and non-interest income, which includes fees and commissions, are two key earnings measures for commercial banks.
Analysts have said South African banks need to boost non-interest revenue to offset weak demand for loans.
“Most of us will be concentrating on top-line growth to see if there is any marked activity in the overall market, because most of the lines are quite sanguine,” said Rob Nagel, a senior portfolio manager at Cadiz Asset Management in Cape Town.
“So it’s really about that top-line growth, and mostly non-interest revenue, that’s what the market will be focusing on.”
Reining in costs
Nedbank, South Africa’s fourth-largest lender and the first to report this season, has flagged an increase of up to 28% in first-half profit from the same period a year earlier, when it was hit by a loss at its retail unit.
Absa, the lender majority owned by Britain’s Barclays, is seen posting a 16% rise in diluted headline EPS to 619 cents, according to the average of two analysts’ estimates taken by Thomson Reuters.
Standard Bank, Africa’s largest bank by assets, is seen posting a 4% uptick in diluted headline EPS to 398 cents, according to the average of two estimates.
Headline earnings, the main profit gauge in South Africa, excludes certain one-time items.
Standard is scaling back costs after an aggressive expansion push to become a top emerging-markets lender.
It slashed more than 2 000 jobs in London and Johannesburg to offset weaker revenue last year, and sold its 36.4% stake in Russian brokerage Troika Dialog for $372-million.
Argentine media has speculated Standard could be selling 75% or 80% share in its local unit to the Industrial and Commercial Bank of China for as much as $800-million.
Standard Bank, 20% owned by ICBC, is due to report on August 11, Nedbank on August 1, and Absa on August 2.
South Africa’s other major commercial bank, FirstRand, has a financial calendar ending in June and is due to report full-year results in September.—Reuters.