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South Africa Commercial Banking Report Q4 2008
Business Monitor International, Jan 2009, Pages: 52
The South Africa Commercial Banking Report provides independent forecasts and competitive intelligence on South Africa's commercial banking industry.
This report is being written at a time when the global financial crisis, which arose as a result of the evaporation of inter-bank liquidity, appeared to be moving towards a resolution: the governments of the UK, the US and most of the larger countries in the Euro zone have all announced plans to make funds available – in one form or another – to their respective commercial banking sectors. As yet, it is too early to identify the impact of the crisis on particular emerging markets. However, in the regular section that discusses the changes we are making to the report, we include a lengthy piece that attempts to identify the key issues. In essence, in the emerging markets (and, indeed, the developed countries) of the Asia-Pacific region, commercial banks appear to be well placed to deal with the crisis. The same is broadly true of commercial banks in the various countries of the Middle East and North Africa. In Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that of Brazil, while Nigeria faces some of the same challenges as those that confront Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming.
It has not been practicable for us to collate the latest figures for bank assets and bank lending this quarter. The global financial situation has been changing so rapidly that most numbers would have become out of date. Nevertheless, we expect that, in the coming months, it will become obvious that credit growth is slowing dramatically in most of the countries whose commercial banking sectors are profiled in BMI’s reports, and we will amend the figures – and indeed our forecasts – accordingly. Nevertheless, we believe that the figures compiled last quarter provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, environment. We have therefore left them and our commentary on the key issues, essentially unchanged.
The figures on the tables above provide a snapshot of the banking sector in South Africa and the changes that have taken place within it over the last year. To put the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The median loan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil). On their own, the ratios of loans to deposits, assets and GDP mean little. However, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was 63.9% in India.
From Q308, we have included a section that examines the risks associated with each country’s banking sector in a new way. We have essentially sought to ask this question: to what extent will the banking sector likely need to source funding from banks in the rest of the world over the course of 2008? Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macroeconomic developments and recent movements in financial markets. Booming oil prices – and, in Iran at least, highly inflationary monetary policies – have led to a surge in bank lending in much of the Middle East and North Africa. It is not clear that all of this lending has been prudent. Nevertheless, the massive current-account surpluses being achieved by many of the countries in the region indicate that – quite unlike South East and East Asia in 1997-1998, for instance – the currencies are undervalued. There is no reason why the boom should stop anytime soon. The Middle East and North Africa should, collectively, continue to be a significant supplier of capital to the rest of the world.
However, in part because of the relative underdevelopment of financial services and banking in most countries, relatively little of this money should come directly through the local banks. As in previous reports, we include a SWOT analysis for South Africa. The commercial banking sector has long been recognized as one that is highly sophisticated relative to the country’s per-capita income levels. Taking a longer-term view, though, the slowest growth in the number of people who are wealthy enough to avail themselves of the services provided by the banks will continue to constrain the sector’s growth. Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns. It does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realization of potential returns. This reflects BMI’s assessments of overall country risk, together with the regulatory and competitive environment. CBBER for South Africa South Africa’s overall CBBER is 67.8. Within the limits of potential returns, the banking market structure is higher than the country structure – with scores of 71.9 and 56.5, respectively. Within the risks to the realization of potential returns, the banking market elements are again somewhat higher than the country elements – with respective scores of 86.7 and 63.4.
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