The index of South Africa's listed banks fell 1,6 per cent yesterday, while the FTSE/JSE All share index was flat. The decline in the bank index followed a big gain the previous day. The odd one out was Capitec, a lender of unsecured loans, which gained six per cent yesterday after issuing a statement saying yearly profits would rise 35 per cent-55 per cent.

Three JSE banking analysts shared their views on the shares. They said yesterday's decline in the index was probably due to the global weakness on stock markets and risk aversion among investors.

"There have been no fundamental reasons that have affected the share prices of the banks recently that had not been expected. Their recent results for the half year to June were reasonably in line with expectations, even if some were spooked by the size of Standard Bank 's bad debts," one analyst said.

Recent developments that would affect the banks favourably in the medium term included that retail bad debts appeared to have peaked (though corporate sector debt was still likely to rise), while the favourable effect on the banks of the recent 0.5 per cent cut in interest rates, and the possibility, if remote, of another cut, had not been anticipated.

"We expect an interest rate hike early next year," said one analyst. Another analyst said that while valuations appeared quite full in terms of the metrics of the South African stock market, the banks looked relatively undervalued in international terms, because most developed country banks had been re-rated upwards recently in line with their better earnings prospects. "SA banks have lagged a bit," he said.

The main concern about the banks' long-term growth potential was "top-line growth" because consumers remained heavily indebted and this would take "a long while to unwind ", he said.

One analyst said that in the long term South African banking shares had traded at an average discount to the overall market of 10 per cent -15 per cent, mainly because of the regulatory risk associated with banks and gearing. At present the banks were trading at a discount of close to 12 per cent, in line with average historical valuations.

He said that although banks had reported 10 per cent -40 per cent earnings declines in the half year to June 30, they had been conservative in writing off debt and earnings would rebound "fairly quickly" once bad debts started to normalise.

Standard Bank's share price slipped 1,8 per cent to R92,23 yesterday, off its 12-month high of R98,88 reached on July 24. The share has risen 11,1 per cent so far this year.

Absa Group's share price fell 1,7 per cent to R119,90, after reaching a 12- month high of R127 on August 14. It has gained 10,9 per cent this year.

Nedbank Group's share price fell three per cent to R105 after touching a 52- week high of R111,85 on July 14. It has gained 9,95 per cent this year. Firstrand 's share price gave up 0,6 per cent to R14,68.

The Guardian Newspaper, Friday August 21, 2009.