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We take a look at the latest banking sector information for June 2019 as published by the South African Reserve Bank (SARB). So are banks still impairing more and more of their loans and advances issued? In April 2019 banks impaired 3.79% of total loans and advances issued, or in money terms they wrote off R161.12 billion
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So how many banks are there in South Africa as at June 2019?
Based on the data from the South African Reserve Bank (SARB) we can say the following about banks in South Africa:
Registered Banks: 19
Mutual Banks: 4
Co-operative Banks: 4
Local branches of foreign Banks: 15
Foreign Banks with approved local representative offices: 30
So what do these banks balance sheets look like and how does it compare to a year ago?
Registered Banks: 19
Mutual Banks: 4
Co-operative Banks: 4
Local branches of foreign Banks: 15
Foreign Banks with approved local representative offices: 30
So what do these banks balance sheets look like and how does it compare to a year ago?
Total assets of banks in South Africa amounted to R5.798 trillion in June 2019 , up from R5.295 trillion in June 2018. This equated to growth of 9.5% in Total assets for banks in South Africa. Gross loans and advances came in at R4.271 trillion in June 2019, up from R3.922 trillion in April 2018, which is growth of 8.9% year on year.
This is pretty strong and aggressive growth in the gross loans and advances. So in which category of gross loans and advances did the strongest growth take place over the last 12 months?
This is pretty strong and aggressive growth in the gross loans and advances. So in which category of gross loans and advances did the strongest growth take place over the last 12 months?
- Home loans: 4.4% growth to R1.010 trillion
- Commercial mortgages: 7.5% growth to R322 billion
- Credit cards: 11.1% growth to R129 billion (jip South Africans owe R129 billion on credit cards)
- Lease and instalment debtors: 7.9% growth to R428 billion
- Overdrafts: 15.1% growth to R234 billion (so South African's are using R234 billion worth of overdraft facilities)
- Term loans: 10.0% growth to R961 billion (mostly short term and personal loans being taken on). This is a massive amount of money and substantial growth being experienced in term loans. A sign for the South African Reserve Bank (SARB) that South African consumers are becoming ever more indebted.
So what about the South African banks profitability? The image below provides various ratios such as return on equity and return on assets for South African Banks
Return on equity of South African banks decline from June 2018 to June 2019 with it falling from 16.29% to 15.28%. Return on assets declined from 1.36% to 1.23%. Cost pressures ar also starting to manifest as the cost t-to-income ratio increased from 56.80% to 58.41% from June 2018 to June 2019. Net interest income earned by banks in April 2019 amounted to R168.22 billion.
While non interest income of South African banks amounted to R127.99 billion in June 2019. So basically banks earn the bulk of their income from charging interest on loans, with banking and admin and other fees charged by banks making up 43.3% of total income earned while 56.7% of income earned from banks in South Africa comes from interest. But its not only sunshine and roses for South African banks. South African consumers are starting to default more and more on their loans and it shows with the impairments banks are making.
While non interest income of South African banks amounted to R127.99 billion in June 2019. So basically banks earn the bulk of their income from charging interest on loans, with banking and admin and other fees charged by banks making up 43.3% of total income earned while 56.7% of income earned from banks in South Africa comes from interest. But its not only sunshine and roses for South African banks. South African consumers are starting to default more and more on their loans and it shows with the impairments banks are making.
In total South African banks wrote off or impaired loans that have been advanced to the value of R159.22 billion during June 2019. This is an increase of 15.59% on the R137.74 billion that was impaired by banks during June 2018. Impairments growing a lot faster than the new gross loans and advances that are being issued.
And this will affect banks balance sheets and their overall profitability. Currently as at June 2019, 3.73% of all loans and advances made by South African banks are being impaired (or written off). This is up from 3.51% a year ago. If banks, South Africans, government and the South African Reserve Bank needed a sign that South African consumers are really struggling this is it. South Africans are struggling to pay back and service all their debt. And South Africa needs a more expansionary or accommodating monetary policy, not only to assist ailing South Africa consumers but to give South Africa's economy a boost. A tiny 25 basis point cut that was announced recently will hardly make a dent in the debt bill of consumers. South Africa needs a far more aggressive expansionary monetary policy regime.
And this will affect banks balance sheets and their overall profitability. Currently as at June 2019, 3.73% of all loans and advances made by South African banks are being impaired (or written off). This is up from 3.51% a year ago. If banks, South Africans, government and the South African Reserve Bank needed a sign that South African consumers are really struggling this is it. South Africans are struggling to pay back and service all their debt. And South Africa needs a more expansionary or accommodating monetary policy, not only to assist ailing South Africa consumers but to give South Africa's economy a boost. A tiny 25 basis point cut that was announced recently will hardly make a dent in the debt bill of consumers. South Africa needs a far more aggressive expansionary monetary policy regime.