How much tax Standard Bank, FirstRand, Absa, and Nedbank paid in 2024

South Africa’s ‘Big Four’ banks – Standard Bank, FirstRand, Absa, and Nedbank – have paid a combined R17.5 billion in tax so far in the current financial year. 

This was revealed in PwC’s Major Banks Analysis for the first half of the 2024 financial year, which analyses the performance of South Africa’s biggest banks. 

These four banks are responsible for the vast majority of deposits and loans in South Africa, as well as banking large businesses, government departments, and international corporations with local operations. 

The banks achieved combined headline earnings of R56.8 billion in the first half of 2024 despite high levels of uncertainty in South Africa and globally. 

“Within an environment shaped by elevated levels of uncertainty, South Africa’s major banks continue to demonstrate the durability of their businesses,” said Rivaan Roopnarain, PwC South Africa Banking and Capital Markets Partner.

“These results reflect a deep and continuing commitment to executing their strategies with precision while focusing on enhanced customer experiences and leveraging the strength of their franchises.”

The report showed that the major banks’ aggregate headline earnings grew 2.5% against H1 2023 to R56.8 billion. 

This reflects the combination of resilient revenue growth across net interest income and non-interest revenue, supported by a decline in credit impairment charges of 6.3%. 

The high-interest rate environment also constrained the growth of these banks’ loan books, with clients being unable to meet affordability criteria and more caution applied in extending credit. 

These pressures should ease as interest rates come down, enabling the Big Four to grow their loan books strongly and benefit from increased consumer spending. 

However, this will increase pressure on their interest income margins—the difference between what banks pay depositors and lenders—and decrease their profitability. 

The graph below shows the Big Four’s individual earnings and tax bills for the first half of 2024. 

Roopnarain also pointed out that these banks are placing increasing attention on the rest of Africa as countries outside of South Africa continue to grow strongly. 

The scale of these banks’ operations in African markets and the strong growth of these economies have made them an increasingly important part of their financial performance. 

While the potential benefits are immense, operating in Africa also carries significant risks that threaten to minimise earnings growth in the short term. 

Roopnarain said specific challenges come from increased foreign exchange volatility in key markets. 

Foreign exchange volatility resulted in the Big Four banks holding on to foreign currency reserves, which increased to record levels, depressing financial performance. 

Another major threat to these banks comes from far closer to home. Declining interest rates are set to put increasing pressure on profitability. 

A reduction in interest rates is expected to provide significant relief to consumers, result in increased spending, and stimulate economic growth. 

However, banks face different challenges as they have benefited from higher interest rates in recent years.

Gary Davids, an investment analyst at Sanlam Private Wealth, said that these banks have enjoyed a strong recovery since 2020, with their earnings exceeding their pre-pandemic levels.

A major driver of this was the positive impact of elevated interest rates on their existing loan books, effectively increasing the margin on these loans and enabling these banks to generate substantial profits. 

This tailwind has the negative impact of increased borrowers’ defaults, subsequently higher credit loss ratios for these banks, and a rise in bad debt. 

This cycle has come to an end, with the Reserve Bank firmly into its cutting cycle, having reduced interest rates by a cumulative 50 basis points so far. 

The pivot towards lower rates encourages borrowing and increased spending, giving businesses room to invest and expand.

However, this pivot is also expected to squeeze banks’ margins, negatively impact their profitability and change how they grow their loan books. 

Lower interest rates immediately impact banks by reducing their net interest margins (NIMs)—the difference between what they earn on loans and what they pay on deposits. 

In a falling rate environment, the rates banks charge on loans drop since many are variable-rate, prime-linked loans rather than fixed-rate loans.