The report, released on Tuesday (9 July), said this was partly a result of a subdued macroeconomic environment in SA.
The decline in confidence raised questions as to whether the country's major banks would still grow earnings in their retail divisions at upper double-digit rates. SA's major banks, apart from Absa, showed strong growth in earnings for their respective retail divisions in the last financial reporting season.
They are now in a closed period ahead of their reporting for the period ended June.
"Profits are under pressure, but this does not mean banks are not making profits," said Emelio Pera, EY financial services sector leader for Africa.
Overall, banking confidence fell from 82 points in the first quarter to 62 index points by the end of the second quarter the EY survey showed. Retail bank confidence fell from 80 index points in the first quarter of the year to 46, the lowest in almost two years.
Pera said the confidence in retail banking had weakened in the second quarter in line with tough economic conditions, weak employment growth and a challenging labour environment. But the lower confidence was not driven by lower earnings, but rather by anxiety about the financial status of the South African consumer.
The National Credit Regulator said last month that consumer indebtedness had risen about 2%, or by 189,000 individuals, to 9.53m among a little more than 20m credit-active consumers in SA. Bad debts were rising faster than new accounts.
The Standard & Poor's banking industry risk assessment for SA, also released on Tuesday (9 July), said there was an expectation of modest loan growth of between 8% and 10% this year. This might be lower if the growth in unsecured loans continued to slow.
It also expected the availability of unsecured credit to fall this year.
"We think the real estate market will remain subdued, which alongside low interest rates will give domestic banks more time to clean up their non-performing and restructured mortgage loan books," Standard & Poor's said. "We expect weakening asset quality in unsecured lending to negate any real estate market improvement and credit losses to start increasing slowly over the next 18 to 24 months."
Pera said lending growth remained in single digits. There were no signs that corporate and retail banking segments would significantly grow loans.
Source: Business Day via I-Net Bridge
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