Fitch Ratings says South Africa's four largest banks benefited from regional diversification and reported growing earnings in 2018 despite challenging conditions back home. Contributions from regional subsidiaries are likely to increase in 2019, driven by recovery in key African markets, offsetting weaker growth and performance in South Africa.
Asset quality was stable in 2018, despite a modest rise in average impaired loans (Stage 3 loans)/gross loans ratio to 4.1% by end-2018 versus 3.4% at end-2017. The prevailing credit environment in South Africa will place pressure on retail and business banking; however, a material worsening in impaired loans ratios is unlikely. The threat to asset quality remains from direct and indirect exposure to troubled sovereign-owned enterprises and their high degree of connectedness to South Africa's economy.
The banks' strong company profiles and capacity to absorb losses through recurring earnings and sound capitalisation will remain important rating strengths. Intensifying competition, particularly from digitally-led retail banks, will affect earnings in South Africa. Strong contributions from regional subsidiaries will therefore be key to future performance metrics.
The ratings of the banks remain sensitive to South Africa's rating (BB+/Stable) given the concentration of their activities in South Africa, in addition to significant exposure to the South African sovereign.
Link to Fitch Ratings' Report(s): South African Banks 2018 Results Dashboard
