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Tier 1 Reclassification: South Africa: The Giant of African Banking

Jun 17, 2022   •   by   •   Source: Proshare   •   eye-icon 2494 views

The African Continent

South African banks dominated the African region's top banking rankings. In general, South African banks have strong tier 1 capital and liquidity positions, which are directly tied to risk management. Although the banking system varies across the continent, some economic facts cut across regions. The banking sector's outlook is largely positive; however, SMEs will continue to encounter liquidity issues when seeking funding as a result of the high cost of funds and the private sector's crowding effect following the COVID-19 shock. Most African economies have budget deficits, which will lead to greater borrowing in these regions, putting corporates at risk of rising borrowing prices. Credit constraints are loosely linked to the development of the financial sector, and the weak economic performance has fed an increase in non-performing loans (NPLs) in most markets. Although NPLs appear to be coming under control in most banking groups, especially in the Nigerian Banking Sector, it is still on the rise in other markets. 

 

Standard Bank Group, FirstRand, and Absa group ranked the top three banks in the continent and are all incorporated in South Africa. According to data released by Statista, the aggregate tier 1 capital from the South African banks was over US$35bn as of 2020, this amount is roughly the total values from leading banks from Egypt, Morocco, Nigeria, and Kenya

 

Standard Bank Group

Africa’s largest lender by asset and tier 1 capital operates in over 20 countries and has over 560 branches. The bank has a dual listing, listed both on the Johannesburg and Namibian Stock Exchanges. The Industrial and Commercial Bank of China is a 20% shareholder of the Group. With a credit rating of BB+ (Long term) and a stable outlook by Fitch, the bank’s total assets stood at US$181.48bn as of 2021 which rose Y-on-Y by +7.61%.

 

The financial performance of the company improved in 2021 as total income which represents the consolidated revenue of the Group was up by +7.53% and net income rose over +90%. The credit loss ratio and cost-to-income ratio improved during the period (see table 17 below).

 

Table 17: Standard Bank Group Financial Highlights

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FirstRand Group

The Group which ranks as the second-highest lender in terms of assets and market capitalization is also listed on the Johannesburg Stock Exchange and Namibian Stock Exchange. The bank operates in eight African countries and branches in London, Guernsey, and India. 

 

FirstRand has a market capitalization of US$26.57bn and the institution had US$125.59bn in total assets as of 2021. The bank also showed improved performance in its 2021 results, with a +54.72% rise in profit before tax and a decline in cost-to-income ratio and credit loss ratio (see table 18 below). 

 

Table 18: FirstRand Group Financial Highlights

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Absa Group

Amalgamated Banks of South Africa (ABSA) is one of Africa’s largest diversified financial services groups with a presence in 14 countries. The group owns majority stakes in Botswana, Kenya, Ghana, and seven (7) other African countries. In 2021, the group’s total assets rose Y-on-Y by +0.34% to US$101.94bn.

 

The year 2021 was a year of recovery for the top banks in Africa, as Absa Group also saw improved earnings and reduction in credit loss ratio and CIR just as Standard Bank Group and FirstRand performed in the period (see table 19 below).

 

Table 19: Absa Group Financial Highlights

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The Financial Position


Total Assets

At the end of the financial period in 2021, The three top banks in Africa recorded an average growth of +0.80% in total assets. Standard Bank Group had the largest total asset in the two-period (2020 and 2021) with a percentage growth rate of +7.62%. The bank total assets grew to US$183.19 in 2021, which was driven by a +27.96% increase in net and loan advance to banks and a +3.34% rise in other assets of the bank. 

 

First Rand Bank was positioned second in the value of assets owned in the same period. The bank's total assets grew by +2.18% to US$133.89bn in 2021.

 

Absa Group Ltd came third with US$110.o3bn as total assets with a growth rate of +7.29% Year-on-Year. The growth was supported by a +38.87% increase in deferred tax assets, +23.06% growth in investment securities, and +8.83% growth in cash and cash balances with the central bank (see chart 20 below).

Chart 20: Total Assets of Top Three Africa Banks 2021 (US’$bn)

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Shareholders’ Fund

In terms of value, Standard Bank Group had the highest value of US$16.32 in 2021 shareholders' funds with a percentage increase of +12.79%. First Rand Bank came second with a value of US$11.98bn with a growth rate of +10.41%.

 

While Absa Group Ltd ranked third in value of US$9.64bn with the highest growth rate of +12.49% (see chart 21 below).

 

Chart 21: Total Equity of Top Three Africa Banks 2021 (US’$bn)

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Customers’ Deposits

The three top banks reported a significant growth in customer deposits. First Rand Bank attained the highest value of US$110.53bn with an increase of +5.64%. Standard Bank Group ranked second with the second-highest percentage growth rate of +9.50% to US$109.78bn.

 

While, Absa Group Ltd which had the highest growth rate of +12.49% came third, stating US$78.88bn as customers deposit (see chart 22 below).

 

Chart 22: Customers Deposits of Top Three US Banks 2021 (US’$bn)

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Loans And Advances

with the average growth of +8.93% in Loans and Advances, Standard bank Group attained the highest value of US$95.72bn in the period; with an increase of +12.04%. First Rand Bank reported the second-highest value of US$82.94bn. Absa Group Ltd came third in the value of US$73.4bn in loans and advances with a growth rate of +8.93% (see chart 23 below).

 

Chart 23: Loans & Advances of Top Three Africa Banks 2021 (US’$bn)

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Downloadable Versions of Tier 1 Banks Report (PDF)

1. Executive Summary: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

2. Full Report: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

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