South Africa’s major banks delivered a resilient set of financial results for the reporting period ended 30 June 2018, despite various operating and economic headwinds that characterised the period.

It is evident from the results of the major banks that they have continued to spend considerable time and cost on their digital strategies, refining and simplifying products and enhancing that their loyalty programmes to continue to reward clients – all in a focused effort to attract a greater share of customer wallet.

This is according to PwC’s Major Banks Analysis, 2018, which presents the highlights of the combined local currency results of Absa, FirstRand, Nedbank and Standard Bank.

The analysis identifies common trends and issues currently shaping the banking industry, building on previous PwC analyses over the last nine years.

Highlights from the major banks 30 June 2018 results are:

* Although there were divergent performances between the individual banks at 30 June 2018, on a combined basis, the four major banks posted headline earnings of R40,4-billion, which grew 12,1% year on year (against 1H17) and 0,5% against 2H17.

* During the current period, combined ROE grew by 15 bps to 18,8% against December 2017 (17,9% at 30 June 2017).

* Total non-performing loans comprise 3.7% of gross advances at 30 June 2018 (3% at both 1H and 2H17). It is however important to note that previously reported impairment ratios in respect of performing and non-performing portfolios (determined under IAS 39) are not directly comparable to similar ratios under IFRS 9.

* There was a reduction in net interest income of 0,5%, slower non-interest revenue growth of 2.4% and an increase in the impairment charge of 3,7% against December 2017.

* Reflecting the banks’ focus on cost management, the combined cost-to-income ratio dipped to 55,1% at June 2018 (compared to 55,8% and 55,5% at December and June 2017 respectively).

* IFRS 9 was used by the majority of the reporting banks in reporting impairment charges for the period. IFRS 9 not only impacted the impairment charge of the major banks but had other effects – through, for example, the net interest margin (due to changes in the recognition of interest income on defaulted loans, which, under IFRS 9, are no longer presented in the interest line). The major banks’ ROE as at 30 June 2018 also benefited from the IFRS 9 transitional adjustment charge (through reduced equity as a result of the transition impact taken directly to retained earnings).

Costa Natsas, banking and capital markets industry leader for PwC Africa says: “Overall, the positive contribution from the banks’ operations in markets outside South Africa fits in with core features of their strategies to diversify earnings geographically and strategically, as well as within their overall product mix, which we have commented on in recent periods. This diversification strategy across their franchises, regions and portfolios now makes a broader positive impact in the major banks results, and we expect this to continue going forward.”