South African banks generated better returns on equity than their western peers in the first half of the year, says auditing firm PwC.

SA’s four major banks have remained resilient in spite of the global economic slowdown that has hurt the profits of banks in western countries.

This is one of the findings of PwC SA’s Major Banks Analysis Report, released yesterday, which analysed the major banks’ results for the six months to June 30.

PwC found that local banks had lifted headline earnings 17 percent to R21.3bn over the period.

A benchmark group of western, global banks reported average return on equity for the 2011 financial year of about 2.1 percent for US commercial banks and 14.7 percent for Canadian banks. In SA, the return on equity for Absa, FirstRand, Nedbank and Standard Bank combined was 15.9 percent.

"The downside risks in Europe remain elevated, which is weighing heavily on market sentiment and it appears that will be the case for some time," said PwC financial services leader Tom Winterboer.

PwC’s banking and capital markets leader for southern Africa, Johannes Grosskopf, said the most "sensitive areas" for local banks continued to be the ability to grow revenue, contain bad debt and manage their cost base.

Impairment charges, particularly on secured assets, had been an area of focus by SA’s banks and the size of nonperforming loan portfolios fell to R106bn at June 30, compared to R109bn at the end of the second half of 2011.

Said PwC: "The overall non-performing loan level, in excess of R100bn, remains high and given the macroeconomic pressures coupled with property prices that remain under pressure, we believe this downside risk remains."

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