The banking industry contributes a modest 2% to South Africa’s total economic operating expenses but generates 10-15% of total profits. In comparison, South Africa’s banking sector accounts for roughly half the share of total economy profits compared to its counterpart in the United States.
Why are South African banks so profitable (see here and here)? One possibility is that regulatory barriers and high entry costs shield banks against competition. Another is that banks earn high interest margins on loans because they are able to fund themselves relatively cheaply. Lastly, operational expenses may not accurately measure the contribution of banks to the economy. The broader financial corporate sector has a share in total gross value added that is roughly three times higher than the share of registered banks in combined industry expenses. Unfortunately, official statistics do not provide gross value added estimates of banks alone (or estimates of profits of financial corporates) for like-with-like comparisons.
