As we showed in earlier posts, South African banks are very profitable by global standards. In part, this reflects that interest income tends to rise from higher policy rates and slower-than-expected repricing of deposits (and therefore lower relative funding costs, see here for evidence of the stickiness of deposit rates).
Today’s post by Ayrton Griffin-Ellis shows that higher policy rates tend to be associated with higher net interest income as banks reprice interest earning assets more quickly and completely than their deposits. As a result, banks tend to experience rising profitability during hiking cycles, as long as the economy does not deteriorate and credit losses rise. As we showed in earlier posts (here and here) South Africa’s largest banks have very high sensitivity of bank interest income and expenses to changes in interest rates by global standards.
