One of SA’s largest banks, FNB says the coronavirus pandemic is heightening competition for banks and foresees the possibility of mergers and acquisitions as lenders vie for reduced consumer income.
“When the economy goes through this level of challenges, we do expect a level of consolidation. I think it’s going to be very difficult for all competitors to withstand and cope with the magnitude of the impact the economy will take,” Raj Makanjee, CEO of FNB Retail, said.
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But Victor Mupunda, research analyst at Old Mutual Wealth Private Client Securities, said in tough times, consumers become more astute in searching for lower transactional fees and higher interest rates on deposits. New entrants in the banking sector, such as TymeBank, have positioned themselves in customers’ minds in this regard.
“So naturally, we would expect them to gain more attention from customers looking for attractive interest rates on deposits or lower fees. In our view, this will likely pressure the incumbents to lower fees or risk customer losses,” said Mupunda.
Digital-only banks like TymeBank and Discovery Bank are among the new players still trying to gain new customers. However, they pride themselves with their low-cost structures and newer banking systems, saying it enables them to respond quicker when needed.
But Mupunda said the new entrants are generally lean, meaning that there may not be much room to cut costs.
“Any notable reduction in expenditure will likely impact their growth ambitions and when they expect to turn profitable. Traditional banks, however, have much more room to cut costs, although this too is not a lever they can immediately pull due to the nature of the current crisis,” he said.
For these reasons and the fact that ultimately everyone will be negatively impacted by Covid-19, he said it is not clear cut who will lose and who will flourish.