Abstract
A firm’s level of debt versus its level of equity has important implications for its value as well as its cost of capital. However, there are opposing views among many researchers and corporate finance experts pertaining to a firm’s optimal capital structure. Banks are responsible for providing liquidity as demanded by depositors, and to extend credit as well as liquidity to their borrowers through lines of credit. Given this central role that banks play in an economy, banks have always been concerned with both solvency and liquidity. This study explored the capital structure of the big four banks in South Africa by undertaking a descriptive analysis of the debt and equity dynamics of the big four banks during the period 2007 to 2016. The study employed secondary data which was obtained from various sources such as Bloomberg, online databases, Banks Act-returns, financial statements and reports of the big four banks in South Africa. The data collected was only restricted to Absa Bank, FirstRand Bank, Nedbank and Standard Bank. The study found that FirstRand has the best funding structure among the big four South African banks. ABSA has the second-best funding components with the highest ratio of retail funding to total funding. The study further analysed that Nedbank is by far the most reliant on institutional funding, leaving it particularly vulnerable to re-pricing in this market. Standard Bank has the lowest ratios of long-term and retail funding to total funding and is most reliant on foreign funding.
M.Com. (Finance)