Confidence returns to the banking sector, but more job cuts to come

A glimmer of optimism is returning in the South African banking sector, but cost-cutting remains an imperative and more redundancies are inevitable. This is the picture that emerges from the 30th Ernst&Young financial services index that has just been released. Prospects remain weak for retail banking, hit by the growth of non-performing loans, but investment banks have seen a boost in confidence.

This newly-restored confidence is due in part to improved business fundamentals, but on the flip side of the coin it is also due to the cost-cuts already implemented. More job cuts are on the way, according to Emilio Pera, lead financial services director at Ernst&Young: "Investment banks successfully curtailed their expenditure: staff numbers were reduced to cut their expenses. Now they plan to reduce their expenditure further during the third quarter of this year by way of retrenching more employees."

Large banks have taken particularly decisive action, according to Pera: "Large firms managed to cut costs drastically by slashing marketing and other distribution costs, reducing staff numbers and cutting bonuses paid." However, "both segments of the banking sector have seen a contraction in headcount, as they size down to a more suitable size to fit the current economic environment."

The Ernst & Young survey shows that both retail banks and investment banks are planning to reduce headcount further in the third quarter of the year (see graphs below), even if "the corporate sector of the economy may well lead the recovery, in which case the investment banking market is likely to continue benefiting in the immediate quarters ahead."

Investment banking employees in South Africa

Source: Ernst & Young

Retail banking employees in South Africa

Source: Ernst & Young