Standard Bank Group produced a good set of results in the first half of 2013 despite the challenging South African and international environment.
The group achieved good growth in total income of 13% and managed to offset the pressures of higher credit impairments and costs, adversely affected by a weaker rand. Headline earnings per share increased by 10% to 506 cents, net asset value per share increased by 16% and a dividend per share of 233 cents has been declared. The group's tier I ratio under Basel III rules stands at 12.3%.
The group's positioning across the African continent has been further validated in the period with 27% growth in aggregate headline earnings for its African subsidiaries, other than South Africa.
Ben Kruger, joint CEO of the Standard Bank Group says: "Underlying momentum in our businesses across the continent is strong and we continue to build on the foundation laid in previous years. We are appropriately invested in key African countries and are leveraging the group's strong South African platform, developed over many years, to grow our businesses and deliver value to our clients, shareholders and other stakeholders."
The operating environment in the first half of the year remained challenging against an uncertain global backdrop. While the US economy is looking relatively healthier, concerns remain over subdued growth prospects in the European Union (EU) and lately, China.
South African households continue to struggle with high overall debt burdens, coupled with sluggish income growth and rising inflation. The moderation in spending growth can be attributed to slowing growth both in disposable income and in unsecured lending extended to households as credit providers tightened their lending practices. The stubbornly high household sector debt has compromised the ability of households to take on further debt.
Personal & Business Banking (PBB)
PBB reported headline earnings growth of 14% to R3 655 million in the period, driven mainly by strong NII growth of 20%, offset by higher credit impairments in both South Africa and the rest of Africa. PBB South Africa grew headline earnings 17%, while PBB Africa reported a loss after a disappointing credit performance. PBB's return on equity declined to 16.8% from 18.0% in 1H12.
Profitability continued to improve in Standard Bank's mortgage business, and instalment sale and finance leases had a satisfactory period. Good advances growth was again recorded within card products. Headline earnings from transactional products declined by 13% to R1 060 million. Bancassurance and wealth achieved a 23% growth in total income.
Corporate & Investment Banking (CIB)
CIB's 25% growth in headline earnings to R3 515 million reflects the strong position it occupies in its chosen markets across the African continent. Income growth of 15% outpaced expense growth of 7% with the cost-to-income ratio declining to 59.0% from 63.3%. While credit impairments were 15% higher, pre-tax profit increased by 31% over the comparative period. CIB's improved profitability and heightened focus on limiting capital usage has enabled it to increase its ROE to 14.7% from 12.6% in the period to June 2013. Rest of Africa now accounts for 36% of CIB's total revenue, a substantial increase on the 27% and 31% in the first half of 2011 and 2012 respectively.
The Transactional Products and Services (TPS) business grew revenues by 22%, Global Markets grew revenues by 10% and Investment Banking increased revenue by 20%. In real estate and principal investment management, revenues fell in line with lower portfolio levels, but headline earnings rose 14%.
Liberty's headline earnings for the six months to 30 June 2013 increased by 5% to R1 704 million of which R924 million was attributable to Standard Bank Group. Liberty produced a good operational result and successfully managed the volatility in the markets in May and June 2013. Liberty continues to provide a meaningful contribution to group results and its ROE of 20.4% enables substantial economic value accretion to all its shareholders.
"Further progress has been made across the African continent to develop the group's franchise in our chosen business lines and the 27% growth in headline earnings in this period by our African businesses supports our Africa-centric strategy," says joint Group Chief Executive, Sim Tshabalala. The return on equity delivered by the combined African subsidiaries rose to 18.2% from 17.7% for the six months to June 2012.
During the second half of 2012, the group undertook a painful but necessary restructuring process within CIB's operations outside of Africa. This has resulted in a more focused balance sheet and lower cost base for these operations and has enabled the financial performance to improve over the first six months of the year.
Ben Kruger says: "Although the stand-alone returns delivered by these operations are not at a satisfactory level, these operations remain important components of our strategy to access global skills and investor demand for the benefit of our CIB customers across Africa." The group will continue to evaluate and refine the appropriate business model for these operations within the compliance framework required by the relevant regulatory authorities.
"We continue to build our franchises and invest in good people and robust operating systems for long-term benefit," says Sim Tshabalala.
"While we expect that cost pressures will continue in the second half of the year given the weaker rand, we remain confident in our ability to grow revenues in the challenging environment.
"Substantial progress has been made in increasing our presence and profile in our main business lines across the African continent, but we continue to be mindful of difficult conditions affecting our clients and price appropriately for risk.
"Our capital base is soundly compliant with Basel III and our strong liquidity profile reflects the confidence that depositors and counterparties have in us. We remain focused on improving returns and delivering economic value to shareholders through the remainder of 2013," says Mr Tshabalala.
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