The difference between what you are paid in interest to deposit money in your bank and what you pay to borrow money has reached "unjustifiably" levels in relation to overseas banks.
Stock market and unit trusts investors are the only ones "smiling all the way to the bank" as bank shares continually push new highs as the investment flavour of the past six months. The Johannesburg Stock Exchange financial index has rocketed by 53 percent since the end of October last year.
Not only are local banks making large profits on the difference between borrowing and lending charges, but they also whack their customers with fees that are unthinkable in Europe or America.
Speaking at the Saturday Argus/ Syfrets Private Bank Investor Club in Cape Town this week, Sandra Gordon, chief economist for Nedcor Investment Bank Asset Management, says banks appear to be in a position to immediately pass on further interest-rate cuts to consumers, but "we have seen only one percent drop to borrowers this year, while investors have been slapped with a two percent cut in rates on their savings".
South Africa's real (after inflation) prime lending rate of nearly 13 percent is testing post-World War Two highs and cannot be justified, according to a study by Fleming Martin Asset Management.
"The blame for South Africa's penally-high rates has popularly resided with Reserve Bank governor Chris Stals, but the banks have some answering to do, too," says Fleming Martin.
"Deposit rates having fallen by two percent this year, yet banks have cut prime rates by just one percent.
"The effect of this is that bank margins have widened substantially," Fleming Martin says.
"At 5,25 percent, they are significantly higher than the 1980-to-1997 average of 3,9 percent. Margins averaged 3,7 percent in the 1980s and 4,2 percent in the 1990s.
"Furthermore, South African bank margins are way above those of international banks. In the United States, for instance, bank margins are 2,9 percent.
"The ball is now in the banks' court to cut lending rates again. Until then, bank shareholders will be the winners, while the losers are the economy and the person in the street," Fleming Martin says.
Gordon predicts that banks will drop their interest rates by 0,5 percentage points during the weeks ahead, and by mid-year the prime lending rate could be down by a full percentage point. During the second half of this year, interest rates could decline further, possibly by another full percentage point, she says.
Commenting on the issue of bank margins, Stuart Grobler, general manager at the Council of South African Banks, says credit extension is still too high and it can be argued that even at these high real interest rates, the borrowing sector, in particular the public sector, is over-spending, thereby justifying a continued high real interest rate.
He says it appears that the only countries which support Fleming Martin's view, are the major G7 countries and several Far East nations, which are currently under severe economic stress.
"One reason that South Africa was not affected by the recent Far East crises could be precisely because of the high real returns for international investors in South Africa," he says.
When margins get squeezed then the same anaylsts don't motviate higher margins to ensure continued bank viability.