Photos: Simphiwe Mbokazi Photos: Simphiwe Mbokazi
Bank customers and shareholders are facing a lose-lose situation.
Clients stand to pay higher charges while shareholders will have to lower their expectations of returns, according to PricewaterhouseCoopers (PwC) financial services leader Tom Winterboer.
At a presentation in Johannesburg yesterday, he said banks faced rising costs as they complied with new regulations and revised international financial reporting standards.
In the wake of the global financial crisis, regulators internationally have been introducing regulatory reforms and South Africa is moving in line with the rest of the world.
Costa Natsas, a director at PWC, noted: “Some of the costs (of tighter rules) will have to be passed on to the consumer and expectations of return on equity will have to be reset.
“Banks will have to have more capital and therefore return on equity (ROE) will go down. And banks with excess capital will not be prepared to return it to shareholders.”
Natsas quoted recent comments by bank chief financial officers who cited an uncertain banking environment as a reason for keeping an additional capital cushion.
Banks will face criticism on two fronts.
In November last year, trade union Solidarity released the results of a survey of charges on transactional accounts and threatened to launch a boycott by its members of Absa, which was shown by the survey to have the highest charges.
Standard Bank was the next most expensive bank while First National Bank and Capitec fared best.
Investors have already seen returns decline. PwC said ROE dropped from 17.26 percent in June 2009 to 15.3 percent in June last year.
Winterboer added that, in the long term, ROE was likely to fall further from this relatively low base.
Cost pressures from changes to regulations come at a bad time for banks as well. The cost to income ratio has already risen sharply, from 49.7 percent in the 12 months to June 2009 to 54.19 percent in the following 12 months, according to Winterboer.
Operating expenses have risen from 2.4 percent of total assets to 2.57 percent.
However, banks have slightly improved their profitability, with industry profits rising from R29.17 billion to R29.6bn in the same period.
Johannes Grosskopf, responsible for banking at PwC, said while impairments (bad debt) remained at high levels, charges for impairments had come down as consumers’ financial positions had improved and fewer people had moved into arrears.
Impaired advances rose from 5.71 percent of total loans to 5.8 percent in the period. But they were on a decreasing trend in the first six months of last year and probably fell further in the following six months, Grosskopf said.
Banks will start to report their figures for the second half of last year starting in the middle of next month. - Business Report
