The banking industry accounts for only a small share of South Africa’s total output in the economy (around 2% of total economy operating expenses), but it accounts for 10-15% of total profits. By comparison, the share of the South Africa’s banking industry in total economy profits is roughly half of what it is 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.
