Finance

How much R1,000 invested in South Africa’s biggest banks in 2024 is worth today

Banks

Capitec was the best investment in 2024 compared to South Africa’s ‘Big Four’ banks—Standard Bank, Nedbank, FirstRand, and Absa—with impressive share price growth of almost 30%.

South Africa’s banks have performed exceptionally well in 2024, with all of their share prices having grown in the year to date.

Capitec has seen the best share price performance by far, having increased by 29% in the year to date, followed by Nedbank at 22%.

The other three banks only experienced single-digit share price growth, with Absa at 7%, FirstRand at 3% and Standard Bank at just below 2%.

South Africa’s financial sector is considered one of the strongest in the world, with the country’s top banks ranking among the best.

PwC’s recent Major Banks Analysis said South Africa’s traditional ‘Big Four’ posted strong growth in a difficult operating environment, while their home market registered low growth and was plagued with uncertainty.

The combined headline earnings of these four banks rose 13.8% in the past financial year to R113.2 billion, despite these headwinds and their average credit loss ratio rising to over 100 basis points.

PwC’s banking and capital markets partner, Rivaan Roopnarain, said these results are enviable by global standards and reflect the country’s strong financial sector.

The firm said the South African components of these businesses continued to suffer due to load-shedding and the elevated cost of living.

PwC said the banks’ revenue benefitted from higher interest rates, balance sheet growth, market volatility, and efficiencies from digitalising their services. 

Their capital and liquidity remained well above regulatory requirements, while balance sheet provisions reached unprecedented levels in anticipation of forecast risks.

Despite being the country’s biggest bank by clients, Capitec is generally not considered part of the ‘Big Four’.

In 2023, Krutham founder and executive chairman Stuart Theobald said the ‘Big Four’ bank model is dominant in many countries worldwide, including the UK, Kenya, Australia, the US, India and Spain.

He explained that the prevalence of the ‘big four’ model is likely due to a balance between competition and stability. 

More banks would lead to more competition but less stability, while fewer banks would stifle competition but create a more stable system. Therefore, four banks seem to be the “sweet spot”.

South Africa has followed this model for years, but Capitec’s incredible growth over the past few decades led many to believe the bank will disrupt the sector.

“Given Capitec’s continued outperformance in profitability, it could one day break the model. Capitec, for now, seems the only bank with a prospect of doing so,” Theobald said.

“If a bank is sustainably more profitable than the rest of the market, it is inevitable that it will gain market share. Either Capitec will be one of the big four (or big five) one day, or it will be less profitable. Those are the only two options.”

Theobald said Capitec’s challenge is to grow while maintaining profitability. Currently, the bank has a price-to-book ratio of twice its bigger rivals, which means shareholders expect it to grow at roughly twice their rate. 

That is a high expectation to meet forever, and Capitec faced a bruising response from shareholders when it disappointed the market with earnings guidance earlier in 2023.

“As it gets closer to the Big Four’s turf, it has to face up to its economies of scale while navigating regulators who prefer to keep the peace. It will be a hard slog to challenge the long-running equilibrium,” Theobald said.

He said one potential advantage for Capitec is a change in regulations that would allow it to lend to informal businesses and startups. If this happens, Capitec could repeat its success in unsecured retail lending in the small business sector.

Share price performance YTD

Below is an overview of the share price performance of South Africa’s top banks in the year to date. Year-to-date share price performance was recorded on 25 June 2024 at around 11:00.

BankInitial investmentShare price growth YTDCurrent value of investment
CapitecR1,00029.11%R1,291.10
NedbankR1,00022.39%R1,223.90
AbsaR1,0007.34%R1,073.40
FirstRandR1,0003.23%R1,032.30
Standard BankR1,0001.68%R1,016.80

Newsletter

Top JSE indices

1D
1M
6M
1Y
5Y
MAX
 
 
 
 
 
 
 
 
 
 
 
 

Comments