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Batten down the hatches on industrial commodities, says Standard Bank expert
14 August 2015

Standard Bank Group shows strong growth in the first half of 2015 Results for the six months to 30 June 2015 at a glance: Headline earnings: R10 529 million, up 27% Deadline earnings per share (HEPS): 651 cents, up 27% Total dividend per ordinary share: 303 cents per share, up 17% from 1H14 Tier 1 capital adequacy ratio: 13.7% (1H14: 12.7%) Net asset value (NAV) per share: Increased by 6% NReturn on equity (ROE): increased to 15.1% from 12.7% Cost to income ratio: 56.7% from 55.3% Credit loss ratio: declined to 0.99% from 1.13% Group headline earnings increased by 27% to R10 529 million and headline earnings per share (HEPS) increased by 27% to 651 cents. Net asset value per share increased by 6% and group return on equity (ROE) increased to 15.1% from 12.7% in 1H14. An interim dividend of 303 cents per share has been declared, 17% increase on 1H14.

During this interim period, the group completed the disposal of its controlling interest in Standard Bank Plc (renamed ICBC Standard Bank Plc), which was designated as a discontinued operation within the group's income statement. As a result of this transaction completion, earnings attributable to ordinary shareholders includes R2,8 billion of net disposal gains, which have been excluded from headline earnings.

Headline earnings to 30 June 2015 reported within the group's discontinued operation include the effects of a partial recovery in respect of insurance claims relating to the external fraud in the Qingdao port in China; a write-down of the residual aluminium exposure in China; and cash flow hedge releases relating to the disposal. The net contribution to headline earnings from the discontinued operation amounts to R171 million.

Operating environment
Global growth of 2.2% in the first quarter of 2015 underperformed the International Monetary Fund expectations set at the beginning of the year. The economic recovery in the Eurozone seems broadly on track, while in South Africa, the lower oil price has temporarily lowered inflation but electricity shortages, accompanied by subdued consumer and business confidence, restricted economic growth to 2.1% in the first quarter of 2015.

The decline in commodity prices has impacted sub-Saharan Africa in a highly differentiated manner. Oil exporters have been most affected, while for much of the rest of the region, the impact has been reasonably favourable, with many countries benefiting from lower oil prices although, for a number of them, this positive effect is partly offset by the decline in the prices of other exported commodities.

Ben Kruger, Standard Bank Group Chief Executive, says: "Overall, although economic growth has subsided slightly from the 5% achieved in 2014, sub-Saharan Africa remains one of the world's fastest growing regions."

Business units
Personal & Business Banking (PBB) PBB's headline earnings of R4 811 million were 16% higher than the prior period. Net interest income growth of 12% and growth of 8% in non-interest revenue enabled total income growth of 10%. Credit impairment charges were 2% lower than in 1H14, while operating expenses increased by 12%. PBB's ROE increased slightly to 16.0% from 15.8% in 1H14. PBB South Africa earnings rose by 14%, while PBB rest of Africa earnings improved to R56 million from R49 million. PBB outside Africa earnings of R205 million were 92% higher than in the prior period.

  • Transactional products total income increased by 13%, while earnings of R1 189 million were 12% higher than in the prior period.
  • Mortgage lending achieved total income growth of 9%, and grew headline earnings by 12% to R1 037 million.
  • Vehicle and asset finance returned to profitability of R155 million from a loss of R29 million in the prior period.
  • Card product recorded headline earnings growth of 18% to R671 million.
  • Lending products' headline earnings fell by 1% to R585 million.
  • Bancassurance and wealth achieved earnings of R1 174 million, 12% higher than in the previous period.
Corporate & Investment Banking (CIB)
CIB's headline earnings of R4 368 million were 54% higher than in the prior period. Continuing operations' headline earnings were 18% higher as 9% growth in income was matched by similar growth in operating expenses. Although credit impairments showed an appreciable increase, a lower tax rate in the rest of Africa assisted earnings growth.

The loss within the discontinued operation, being the outside Africa global markets business, decreased to R179 million from a loss of R1 032 million in 1H14, mainly due to the non-recurrence of the fair value adjustment on repo positions relating to aluminium financing in China. A partial recovery in respect of insurance claims relating to this matter received during the period was largely offset by separation costs incurred and final balance sheet adjustments relating to the disposal of the discontinued operation.

  • Transactional products and services grew total income by 9% and headline earnings by 4% to R1 416 million.
  • Global markets recorded earnings growth of 30% to R2 112 million during the period.
  • Investment banking earnings fell 1% to R943 million on broadly the same level of income as in the prior period.
  • Real estate and principal investment management (PIM) recorded headline earnings of R104 million compared to a loss of R80 million in 1H14.
Liberty
Liberty's headline earnings for the six months to June 2015 increased by 6% to R1 991 million of which R1 084 million was attributable to the group. Operating earnings were 10% higher and earnings from the Shareholder Investment Portfolio fell by 2%.

Prospects
Global growth of 3.3% is expected in 2015, marginally lower than in 2014, with a gradual improvement in advanced economies and a slowdown in emerging market and developing economies. Sub-Saharan Africa's economy is set to register another year of solid economic performance, while South Africa's economic growth outlook remains around 2% for 2015 and 2016 with downside risks such as uncertainty in the labour market, inconsistent domestic electricity supply, prices of mining related commodities and vulnerable global growth expected to persist.

Sim Tshabalala, Standard Bank Group Chief Executive, says: "We will continue to leverage our brand, market positioning and talented staff to better service our clients and customers across Africa. In spite of the evident economic challenges we remain committed to making progress in lifting ROE over the medium term.

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