SA’s five largest banks collectively hold 89.79% of the total assets of the 31 regulated lenders overseen by the Prudential Authority (PA), the division of the Reserve Bank that regulates the financial services industry.
That’s according to the PA’s 2021/2022 annual report, which was released on Monday and showed total banking sector assets grew 5.61% year on year to R6.82-trillion as at end-March 2022 driven largely by higher loan advances, holdings of investment securities such as government bonds and short-term negotiable instruments. The local branches of the 13 international banks operating in SA accounted for 5.97% of sector assets while other locally registered lenders represented just 4.24% of the sector’s assets.
Though the PA did not specifically name the five largest SA banks in its annual report, the five biggest lenders in the country by market capitalisation are FirstRand, Standard Bank, Capitec, Absa and Nedbank. The PA also painted a rather healthy picture of the local banking industry saying its profitability had improved in line with a more benign operating environment.
Gross loans and advances in the sector rose 5.32% year on year to R4.846-trillion at end-March, underpinned by increased home loans, lease and instalment debtors, term loans, intragroup bank loans and repo agreements. Banks’ operating profit jumped 123% year on year to R97bn at end-March 2022 as credit losses fell and both net interest and non-interest income improved.
The liquidity position of SA-based banks — their ability to fund increases in assets and meet obligations as they become due without incurring unacceptable losses — exhibited strong resilience. SA’s total banking industry’s liquidity coverage ratio (LCR) was at 139.9% at end-March, up slightly from the 137.95% recorded a year before.
That’s well beyond the minimum LCR of 90% that banks are required to maintain as of January 2022, which is up from the 80% level it was reduced to in April 2020, to mitigate against any potential liquidity strains on lenders and enable them to support the economy during the worst of the Covid-19 pandemic’s effects.
“Financial markets have since returned to a state of relative normalcy, and banks now have sufficient liquidity due to an increase in deposits,” the PA said in its annual report.
Impaired loan advances also fell 8.9% year on year to R215bn at end-March while the ratio of impaired advances to gross loans and advances decreased to 4.43%.
Like the banking sector, SA’s life-insurance industry is also dominated by the five largest players, which collectively held 72.7% of total assets of R3.724-trillion as at December 2021, the bulk of which was invested in investment funds and equities.
The non-life insurance sector is dominated by the eight largest insurers, which collectively held 57.9% of gross premiums as at December 2021. Total gross premiums of the primary insurers, cell captives, captives and reinsurers in the non-life insurance industry stood at R169.85bn for the 12 months to end-December 2021.
“Banks and insurers appear well-capitalised and liquid,” the PA said, though it added that the operational resilience of small to medium-sized insurers was a concern as their profitability was under pressure, a factor that appears to be driving consolidation in that segment of the market.
In contrast to the large commercial banks the PA cautioned that mutual banks continue to make losses despite with their total assets falling 3.18% year-on-year to R3.26bn as at end-March 2022. That was mainly driven by lower gross loans and advances, which shrank 5.9% year-on-year to R2.47bn while overdue loans increased 6.81% year-on-year to R212m.
The regulator also flagged its concerns about governance at the country’s five co-operative banks and 24 member-based deposit taking institutions, commonly known as CFIs. The regulator said a key area that had to be addressed was the poor financial management acumen of co-operative bank and CFI board members, which it said were often ineffective and showed limited participation in audit and other committees.
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