Headline earnings: R12 111 million, up 12%
Headline earnings per share (HEPS): 756 cents, up 11%
Interim dividend per share: 400 cents, up 18%
Total capital adequacy ratio: 16.2% (1H16: 15.9%)
Net asset value (NAV) per share: 9 554 cents up 2%
Return on equity (ROE): Improved from 14.4% to 16.1%
Cost-to-income ratio: Declined from 56.8% to 56.3%
Credit loss ratio: Declined marginally from 105ps to 96bps
Standard Bank Group’s results for the period ended 30 June 2017 were robust, underpinned by its universal client offering, geographic diversity and increasingly digital capabilities. Currency movements dampened the group’s reported results. Group headline earnings grew 12% period on period in ZAR, but 19% on a constant currency (CCY) basis, supported by Africa Regions which grew by 46% in CCY.
Despite the dilution impact from ZAR strength, Africa Regions increased its contribution to banking headline earnings to 29% and contributed positively to group HEPS growth and ROE.
Against a backdrop of adverse macro-economic developments, policy uncertainty and rating agency downgrades The Standard Bank of South Africa’s (SBSA) asset and income growth were constrained. Despite these headwinds, SBSA demonstrated its resilience and grew its headline earnings 18% on the back of good cost management and muted credit impairment charges.
The group’s capital position remains strong and in excess of the group’s target ranges.
In 1H17, global growth prospects firmed. Emerging markets benefited from the emerging market risk-on trade, providing broad support to funding costs and currencies.
The challenges facing South Africa, namely low growth, high unemployment and high levels of inequality, continued. During the period, despite business confidence levels remaining low overall, certain parts of the economy did grow. The moderate recovery in commodity prices provided some support to miners. As the drought abated in certain parts of the country, it provided much needed respite to parts of the agricultural sector. Underlying credit growth remained lacklustre, supported by low single digit real corporate growth whilst household credit continued to contract, albeit at a slower rate.
Across the 19 African countries in which Standard Bank operates outside of South Africa, the dynamics continue to be diverse. In the oil-export reliant countries on the West coast, such as Nigeria and Angola, prospects improved as oil recovered from lows in 1H16. In contrast, foreign currency liquidity constraints continued for most of the period, depressing market activity. East Africa suffered the effects of a drought. In Kenya specifically, the combination of the drought, the effects of the regulatory caps and floors introduced in September 2016 and pre-election anxiety resulted in a slowdown in credit growth. Mozambique’s currency, although weaker than in 1H16, stabilised in 1H17.
The combination of higher rates, higher cash balances on the back of foreign currency liquidity constraints, flight to quality and improved macros provided support for the Africa Regions’ performance.
Corporate & Investment Banking (CIB)
CIB’s headline earnings grew 10% to R5.3 billion and ROE improved from 17.8% to 21.4%. On a CCY basis, headline earnings grew 19% supported by strong revenue growth, better credit performance and tight management of costs. CIB recorded targeted asset growth in the Consumer, Financial Institutions and Real Estate sectors.
Due to the impact of currency, all growth percentages reported hereafter are on a CCY basis. Total income grew 10% to R17.4 billion underpinned by CIB’s diversified and sustainable franchise, reflecting the successful deepening of client relationships. Operating costs increased 3%, delivering positive jaws of 7%. CIB reported a lower cost-to-income ratio of 52.2%.
The credit loss ratio to customers declined from 71bps in the prior period to 45bps, as prior period impairments on specific names in SA, Nigeria and Ghana were not repeated.
• Global markets headline earnings declined 6% to R2.0 billion
• Transactional products and services headline earnings increased 67% to R1.9 billion
• Investment banking headline increased 18% to R1.4 billion
Personal & Business Banking (PBB)
PBB’s headline earnings grew 11% to R6.1 billion and ROE improved from 16.5% to 17.7%. On a CCY basis, headline earnings grew 15%. PBB continues to grow its client base in its targeted segments.
PBB SA’s earnings grew by 13% to R5.7 billion. Total income grew 6% while operating expenses grew 5%, delivering positive jaws. Credit impairments declined 6% period on period.
Results outside SA were impacted by relative currency depreciation. PBB Africa Regions continues to gain momentum. In CCY terms customer loans and deposits grew by 7% and 12% respectively, supporting income growth of 11%. Active PBB customers increased by more than 10% in each of the following countries: Kenya, Nigeria, Botswana, Mozambique and Tanzania.
Wealth International’s headline earnings grew 41% in CCY supported by an 18% increase in the deposit base in GBP.
Digital adoption continued to gain traction. PBB SA recorded close to 500 million mobile transactions, up 55% relative to the prior period while ATM and teller volumes were down 5% and 15% respectively. Africa Regions recorded 100 million digital transactions, up 47% period on period.
Other banking interests
Headline earnings from other banking interests increased from R2 million in 1H16 to R212 million in 1H17. The headline earnings contribution from the group’s 40% stake in ICBCS amounted to R48 million, a significant improvement on the R356 million loss recorded in the prior period. The headline earnings contribution from the group’s 20% stake in ICBC Argentina declined 54% from R358 million to R164 million.
Liberty’s normalised headline earnings for the period decreased 30% to R1.3 billion, driven, in particular, by continued pressure in new business margins affecting Individual Arrangements and the performance of STANLIB. Liberty’s IFRS headline earnings attributable to the group, adjusted for the impact of Liberty’s deemed treasury shares, was R882 million, down slightly from the R886 million recorded in the prior period.
Looking ahead, stronger global growth and firmer commodity prices should provide some support in 2H17. In July, the IMF reaffirmed its outlook for global growth of 3.5% in 2017 and 3.6% in 2018. Global trade is expected to grow faster. The emerging market trajectory is also favourably underpinned by supportive policy in China as well as broader infrastructure spend in Asia.
In sub-Saharan Africa, the macro environment is expected to continue to improve and interest rates to trend down as inflation moderates. The IMF expects sub-Saharan Africa’s GDP growth to recover in 2017 and 2018, from a low of 1.3% in 2016 to 2.7% and 3.5% respectively. More specifically, GDP growth across our Africa Regions franchises is expected to accelerate to 3.3% in West, 3.9% in South and Central and 5.9% in East in 2018. Nigeria’s economy is expected to recover from a 1.6% contraction in 2016 to positive growth of 0.8% in 2017 and accelerate to 1.9% in 2018. In terms of South Africa’s outlook, the expectations of a recovery in 2017 have moderated and the current SARB forecast is for 0.5% growth for the year. The risk of further rating agency downgrades remains. Declining interest rates, in SA and in some of the countries in our Africa Regions, will be a headwind in 2H17.
In the period, Standard Bank has successfully embedded the five value drivers of client focus, employee engagement, risk and conduct, financial outcomes and social, economic and environmental (SEE) impact in the businesses. They underpin the banks decisions and drive the group’s shared value outcomes.
Sim Tshabalala, Standard Bank Group CEO says: “Across our CIB franchise, Standard Bank remains committed to partnering its clients on their growth journeys and delivering exceptional client experiences. Standard Bank banks clients, not economies, and will continue to seek out pockets of growth. In August 2017, the bank opened its doors in Abidjan, Ivory Coast, the biggest economy in the West African Economic and Monetary Union (WAEMU) and one of the fastest growing economies on the continent, providing clients with on-the-ground CIB capabilities and access to the broader WAEMU region. In Africa Regions, the bank continues to develop its PBB franchises in a systematic manner; banking the employees, suppliers and customers of corporate clients. Standard Bank’s strategy of banking the ecosystems surrounding clients continues to gain traction.”
Standard Bank will continue to invest in its digital capabilities and the re-skilling of employees, with the primary objective of improving the client experience. Standard Bank’s core banking replacement journey in SA and Africa Regions remains on track to close by the end of the year. Although it has been a long and costly exercise, the bank remains of the opinion that this provides it with the resilient platform required to compete in a digital world. Standard Bank will continue to seek opportunities to successfully collaborate with FinTechs and support relevant IT skills development initiatives.
Mr Tshabalala says: “In a complex business environment, we rely on the people across our network to navigate the challenges each business faces and to make appropriate decisions in line with strategic priorities. Doing the right business the right way remains a priority. We take swift action against those who are proved to have violated our values or broken the law. Regulatory change, both locally and internationally, has continued apace and appears unlikely to slow. We continue to engage with policymakers and regulators across our footprint to help to achieve appropriately balanced outcomes. In South Africa specifically, we will continue to actively engage in the debates around the banking sector’s role in promoting transformation and inclusive growth, and on specific issues such as the importance of the SARB’s mandate and independence.
As underpinned by our purpose of driving Africa’s growth, our view is that a financial institution’s role in society is broader than providing superior returns to shareholders. In terms of our SEE impact, we have a responsibility to facilitate growth in the markets in which we operate, improve financial literacy and access, and develop local markets in a responsible and sustainable way.”
Standard Bank remains committed to its medium term targets of delivering through-the-cycle HEPS growth and ROE within the target range of 15% - 18%. The bank is focused on the levers available to deliver on its targets, including positive jaws, efficient capital management and improving returns from PBB Africa Regions.
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