The prospects of the country’s banks will be tied to the wider performance of the economy in 2019,  with Investec possibly offering the most value at the moment. 

Harry Botha, banks analyst at Avior, said Investec appeared to be the most attractive from a valuation perspective.

The Investec group has three operating divisions: asset management, wealth and investment, and specialist bank.

For the specialist bank, Botha expects operating earnings to grow by 21% for the current financial year (to end March) and 10% for financial year 2020.

 Patrice Rassou, head of equities at Sanlam, says the bank is trading at almost half its book value.  On the current share price of R80 a share, Rassou says that investors are buying the specialist bank for R35 a share when it has a net asset value of R64 per share.

“So it looks really cheap,” he says. 

Botha expects improved economic activity after the elections as a result of more policy certainty, especially regarding land reform.

“That should start to encourage investment in the economy, and I think the banks with more exposure to corporate and investment banking should do better. This includes the likes of Nedbank and Standard Bank.”

Rassou thinks Nedbank should produce earnings growth in the high single digits with the benefit of  a turnaround in Ecobank, together with strong cost control.

Rassou and Botha both agree that the rest of Africa operations will continue to grow earnings faster than what is possible locally.

Standard Bank receives the largest contributions of earnings from its African platform. “Earnings growth should be closer to 15% for Africa, as they continue to win customers on the continent. They are getting close to some of the largest banks in terms of competitiveness, and in multinational banking they are competing with the likes of Standard Chartered,” says Botha.

He thinks Standard Bank should support the group to deliver earnings growth closer to 10% overall in 2019. 

Rassou expects mid-single digit growth from Absa. “Absa has been the laggard and they say they have increased risk appetite to lend, but we are not seeing it yet. They can push unsecured lending, but the market is quite constrained.”  

According to Rassou, FirstRand should deliver the fastest earnings growth of the big four as FNB continues to reap the rewards of strong client acquisition which is growing its non-interest revenue.

“It will also benefit from the integration of recent acquisition Aldermore plc into its books, which should boost earnings growth into the early teens for 2019,” says Rassou.

Capitec will grow earnings the fastest according to Rassou — in the low teens — “with a number of engines for growth being developed”.

“The new business they are writing for funeral policies is at the same rate as Sanlam. The credit card is also another avenue for growth, so it’s a strategy that will help penetrate the middle market and higher income segments.”

So where can the surprises come from?

“We are expecting a fairly stable interest rate environment this year, so if the Reserve Bank continues to hike rates this would put more pressure on already constrained consumers, and that will be negative. Other surprises could arise from how aggressively the new banks enter the market,” says Botha.