FNB has made no secret of the fact that it is aggressively looking to increase its market share, with chief executive Michael Jordaan proudly tweeting earlier this year that the bank had gained two-million clients since December 2011.
And then, of course, there are the “Steve adverts”, as they have fondly been called, which make use of an embattled “beep bank” employee to outline FNB’s latest offering.
But FNB is not the only bank actively seeking to attract new clients. Nedbank has been expanding its footprint, opening new branches to attract new clients, as has Capitec.
This competition has benefited customers. There has been competition over fees and more tailor-made products created for the clients they are targeting.
Standard Bank is credited with kicking off the trend in April 2012, when it announced a significant cost saving that would be passed on to its customers, with some fee offerings for transactional accounts being reduced by 50%.
This announcement was followed in June by offerings from FNB and Absa. FNB said it would no longer charge for debit- and credit-card purchases and cut a number of other fees. It also made swipes free on bundled options. Absa has launched structured-value bundles with monthly fees which range from R79 and R149, each of which allows for each number of free ATM withdrawals and deposits a month, unlimited debit and stop orders, electronic account payments and debit card purchases.
Highest penalty fees
A study by Finweek and trade union Solidarity found that FNB had the lowest fee for bundle accounts and pay-as-you-transact accounts, but Finweek found that it had the highest penalty fees, which included withdrawing from another ATM.
Adrian Cloete, at Cadiz Asset Management, said all the banks had had an increase in customers.
“In some cases, they are stealing clients from each other, but they are also gaining customers that have not previously been banked.”
A recently released PwC study of the banking sector found that new products that concentrated on cost reductions and reduced absolute-transaction-related prices had attracted new clients, translating into increased transaction-related revenue for banks.
Cloete said banks had kept their increases below inflation for many years because they understood what clients could bear. He said banks had also increased unsecured lending, which had attracted customers.
“Unsecured lending is not always a bad thing. Done responsibly, with the proper research to ensure that customers are not over extended it can greatly benefit those who would not previously have had access to credit. Some are using the loans to build extra rooms on their homes or buy a car, or for school fees, which has long-term benefits.”
Cloete said the inclusion of the big banks in this market and competition from Capitec, which “treated all customers the same, irrespective of the account they held”, meant that fees on unsecured lending were coming down.
'Bringing down costs'
Absa, the biggest retail bank, and Standard Bank, which follows closely behind, are going to need to do some fancy footwork to gain new clients because they already have a fair share of the market.
Cloete said Absa and Standard were growing client numbers, but not at the same rate as FNB, Capitec and Nedbank.
“Absa, in particular, has concentrated on bringing down costs, not growing its advances book. It also made a big acquisition in terms of acquiring Barclays in Africa, so it has had other priorities.”
Ease of banking has also been a priority for clients, particularly in regard to increasing mobile and online banking. A recent informal ITWeb mobile banking review, which assigned scores for everything from banking services to the ability to purchase additional services like prepaid airtime and make payments or view balances, found that Nedbank scored the highest, followed by FNB, RMB, Standard Bank and then ABSA.
Based on their financial results for the year ended December 2012, the PwC survey found that major banks remained resilient despite recent economic uncertainty in the market.
PwC’s review of banking statistics found an encouraging increase in deposits made to banks. Standard Bank was in the lead, based on December 2012 figures, with deposits of R930-billion followed by FNB, with R651-billion Nedbank (R550-billion) and Absa (R513-billion).
FNB had headline earnings in the same period of R7.1-billion, Standard Bank R6.4-billion, while Absa reported R4.4-billion and Nedbank R4-billion. A first-quarter survey by Ernst & Young has taken a more sober view, however, saying that banks are operating in a challenging environment and will be affected by downward adjustments in gross domestic product growth. This has already been seen in both retail and investment banks reporting very modest credit growth.
Emilio Pera, lead financial services director at Ernst & Young, said growth prospects in South Africa remained subdued and the recent currency devaluation had not resulted in strong export volumes.
“Many bank executives [surveyed] commented on the slowing advances growth and a weaker growth environment in general,” he said. The latest data indicate that credit growth fell in February [year on year] to 7.9% from 8.6% in January.
This situation is not unique to South African banks, however.
Said Pera: “South African banks are largely responding to the weak growth in the domestic market by increasing their focus on their African growth plans. Global banks, by contrast, which are still facing liquidity and capital shortages, are more focused on rebuilding capital levels.”
The survey found that slower advances growth had led to slower revenue streams in the first quarter, which Pera said could be linked to slower corporate sector credit growth. Ernest & Young’s research found, in fact, that lending growth in the corporate segment was “particularly weak and lagged household credit growth”, supporting other research showing weak corporate investment.
Cloete agreed that companies were being conservative about growth. “Mining companies are heavily affected by low commodity prices and business confidence needs to recover. What we need to create is a more encouraging environment to invest."
Strong cost pressures
Pera also believes that strong cost pressures building in the retail sector will have an impact on the banks alongside slowing revenue. On the positive side, Pera said banks had sustained high first-quarter profit in the retail segment and much improved profit in the investment banking markets.
“The banks’ results have generally been good,” said Cloete. “South African banks did not feel the pressure of the 2008/2009 downturn as much as banks globally because [they] are well capitalised.”
He said banks had increased their liquidity since 2009 and the figures suggested that they would be able to accommodate the demands of the new Basel III requirements to raise banks’ minimum capital requirements by at least 2% from the current 9.5% to make them more resilient.
Cloete said an indication of the confidence in South African banks was the fact that their share price had held up well during the economic crisis compared to some international banks.
The PwC survey found that the banks’ combined headline earnings were up 8.9%, based on annual results to December. They experienced an average return on equity of 15.8%, but bad-debt expenses were up 36%.
Concerns have been expressed about how some lower-income households will cope with an interest rate increase, should the economy recover.
PwC’s financial services leader, Tom Winterboer, has warned that an increase in interest rates combined with higher inflation would put pressure on some consumers, which is why banks should ensure that they lend responsibly.