Almost 90% of South Africa’s Banking Sector Controlled by Just 5 Corporations

The South African Reserve Bank’s Prudential Authority has published its annual report for 2019/20, showing how the country’s five biggest banks continue to dominate the sector, despite an increase in competition.

According to the SARB, South Africa’s banking sector is dominated by the five largest banks, which collectively held 89.4% of the total banking sector assets as at 31 March 2020 (March 2019: 90.5%).

Local branches of international banks accounted for 7.0% of banking sector assets at the end of March 2020 (March 2019: 5.8%) while other banks represented 3.6% at the end of March 2020 (March 2019: 3.7%).

Total banking sector assets grew by 16.36% year on year, to R6.6 trillion at the end of March 2020 (March 2019: R5.7 trillion).

This was spurred by an increase in gross loans and advances, derivative financial instruments, and investment and trading securities (mainly government securities and other dated securities), the bank said.

The five largest banks in South Africa based on total assets are:

  • Standard Bank
  • FirstRand
  • Absa
  • Nedbank
  • Investec

These banks face competition from smaller players, including Capitec, African Bank, and more recently Discovery Bank, and TymeBank.

The graph below shows the biggest banks by assets, to December 2019.

“The banking sector remained profitable during the period under review, despite a decline in the profitability ratios,” it said. However, it noted that the impact from the Covid-19 outbreak would have a major impact on the data for the 2020/21 period.

Covid-19 impact

“The spread of the coronavirus disease 2019 (Covid-19) across the world has had a major impact on economies and financial systems,” said Reserve Bank governor and PA chairman, Lesetja Kganyago.

“South Africa, like many other countries, responded to the crisis by putting in place various fiscal, monetary and regulatory support measures. A number of prudential policy interventions were issued by the PA covering banks and insurers.

“The relief measures for banks included a reduction in the minimum liquidity and capital requirements. The guidance notes covered accounting issues and the payment of dividends and bonuses by banks.”

The authority said that the depth and duration of the economic downturn from the Covid-19 crisis remains uncertain at this stage.

“This pandemic, accompanied by a slowdown in economic activity, is expected to weaken banks’ risk profiles or risk-weighted assets and reduce bank profitability, which would negatively affect the ability of banks to meet their minimum capital requirements.

“Financial market volatility, together with the reaction of other financial institutions, has also placed pressure on market liquidity and the supply of term funding,” it said.

South Africa’s response has included:

  • A reduction in interest rates;
  • An injection of liquidity into financial markets;
  • Significant regulatory relief for banks; and
  • Several fiscal and tax measures were announced, supporting households and firms.

“Despite significant turbulence in financial markets, these measures have helped stabilise markets, enabling banks to continue to operate by extending credit to support their customers,” the group said, adding that the government-guaranteed loan scheme for small businesses will complement the measures already taken by banks to support their customers during these trying times.

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Sources: [1], [2]. Image sources: [1], [2].