Standard Bank Group delivers positive earnings growth in first half 2011
11 August 2011
Standard Bank Group (SBG) has turned the corner and delivered positive earnings growth for the six month period ended 30 June 2011. The group generated headline earnings of R6,6 billion, up 11% on the corresponding period last year, and headline earnings per share of 418,4 cents were up 10%.
The group's ROE has started to trend upward, recording an ROE of 14,5% for the six months compared to 12,5% for the 2010 year. A dividend per ordinary share of 141 cents has been declared for the period under review.
Here is a summary:
R6 637 million, up 11% on 1H10
Headline earnings per ordinary share (HEPS)
418,4 cents, up 10% on 1H10
Return on equity (ROE)
14,5% (1H10: 13,5%)
58,4% (1H10: 58,1%)
Credit loss ratio
0,80% (1H10: 1,04%)
Jacko Maree, Standard Bank Group CEO, says: "It is encouraging to see that the action we took on costs in 2010 is starting to bear fruit. Cost efficiency has become an increasingly important management tool for banks world-wide as the outlook for revenues remains uncertain. Recognising this in 2010, we embarked on a range of long-term and short-term cost saving initiatives across the group, many of which are well under way and expected to have lasting impacts."
Personal & Business Banking results
Headline earnings were up 30% to R2 483 million for the period, supported by an improved credit experience. The division earned an ROE of 17,8%, up on the 14,7% recorded in the prior period.
Mortgage lending (headline earnings of R58 million for the six months)
Number of loan applications continued to show an upward trend and the value of new loans registered in the six months was 7% higher than in the corresponding period last year.
Loan growth of 5%.
New business currently being written in mortgages will be profitable over its lifetime, earning an ROE well in excess of the cost of equity.
NPL levels remain high but reduced to 8,6% of the book (HY10: 10,4% and FY10: 9,4%).
Instalment sale and finance leases (headline earnings of R178 million for the six months)
Loan growth of 4%, particularly encouraging in Ghana and Nigeria.
NPLs continued to decrease as a percentage of the book to 4,3% (HY10: 6,7% and FY10: 5,3%).
Credit card (headline earnings of R340 million for the six months)
Increased number of accounts offset by lower balances per account.
Credit impairments improved further as the existing portfolio continued to mature.
Transactional and lending products (headline earnings of R1 323 million for the six months)
Number of current accounts increased by 14% in South Africa and deposits grew by 5% across the network, which helped grow fee income.
The roll out of additional branches and ATMs in Nigeria contributed to higher transaction volumes and revenue, but drove up operational expenses.
Bancassurance and wealth (headline earnings of R584 million for the six months)
Continued to forge closer operational ties with Liberty.
Higher short-term insurance broking profit largely due to growth in home-owner cover policies.
Corporate & Investment Banking results
Despite the difficult operating environment, Corporate & Investment Banking recorded stronger revenues across its regions as the year progressed. For the six months ended 30 June 2011, total income and headline earnings ended up 1%. A credit impairment charge for the period (compared to a net reversal in the prior period) was offset by good cost containment, with costs down 3%. An ROE of 15,4% was recorded for the period, still dampened by a low ROE in operations outside Africa.
Global markets (headline earnings of R1 378 million for the six months)
Revenues were up an encouraging 6% in a very challenging environment.
Strong performance from South Africa where a number of large client hedging transactions were executed and forex volumes increased strongly, albeit at reduced spreads.
The Rest of Africa struggled to grow revenues off the high base set in the prior year as the group positioned its books cautiously ahead of elections in Nigeria and Uganda.
Outside Africa revenues were down 9% and flat on a constant currency basis, a good result relative to global peers.
Investment banking (headline earnings of R1 278 million for the six months)
Investment banking enjoyed a better second quarter as healthy pipelines began to convert into revenues, particularly evident in capital markets.
Transactional products and services (headline earnings of R676 million for the six months)
Stable six months, with revenues and headline earnings up 8%.
Increased levels of interest and fee income in the Rest of Africa, and an increase in customer deposits in Nigeria in particular, drove this performance.
A comparably weaker performance from South Africa partially offset this, with net interest income adversely impacted by margin compression resulting from a negative endowment effect and increased competition.
Liberty produced headline earnings of R633 million for the six months. It improved operational results in the core South African insurance and asset management operations.
Towards the end of 2010, Standard Bank Group articulated a refined strategy in response to a changed banking landscape post crisis and intense pressures on revenues following the global recession. Standard Bank Group is some way down the road in implementing this refined strategy.
In terms of Standard Bank Group's ambition to have first class, on the ground operations in chosen countries in Africa, the bank has continued to invest tactically in these businesses. In some markets Standard Bank Group has proved that it can grow sustainable universal banking platforms, with strong Personal & Business Banking and Corporate & Investment Banking franchises and the bank is earning good returns.
In other markets Standard Bank Group is just beginning this journey and the returns in these markets dilute the overall performance from the Rest of Africa. Standard Bank Group recognises that it is still not at sufficient scale in key regions, nor present in some potentially attractive and fast-growing countries. The bank has a good platform from which to expand, it has the capacity to grow organically and it is also looking for opportunities for acquisitions.
Standard Bank Group's intention is, over time, to halve the amount of capital utilised in operations outside of Africa from $3 billion to approximately $1,5 billion.
Mr Maree says: "The largest portion of capital outside Africa is in our subsidiary bank in London and the strategic requirement for a London base has been re-evaluated. We remain convinced that the London presence as a legal entity with a banking licence is critical for the growth of our Corporate & Investment Banking franchise. However, the capital base is too big and the costs are too high. We aim, therefore, to make better use of the prudential limit for foreign currency lending on Standard Bank South Africa's balance sheet for transactions in our core sectors which will reduce the capital demand in London, but increase the capital requirements in South Africa."
A narrower focus with robust productivity assessments of each business line should further reduce capital demand outside Africa, offsetting the increased capital demand the bank expects to originate from its focus on African and natural resources businesses. Standard Bank Group has initiated a number of cost saving strategies in its International operations which are targeted to save $75 million on an annualised basis.
"We announced in March that we sold our 36% stake in Troika Dialog Group Limited to Sberbank, the largest bank in Russia. And post the balance sheet date, we announced that we have signed an agreement with Industrial and Commercial Bank of China (ICBC) for the sale of a majority stake in Standard Bank Argentina (SBA). We have agreed to sell 55% of our current 75% shareholding and retain a 20% shareholding in SBA. Subject to conditions and approvals, proceeds from the sales of our interests in Russia and Argentina of approximately $750 million will flow to the group and earnings will reduce by approximately $50 million per annum. Our challenge will be to redeploy this capital effectively," said Mr Maree.
Capital management and liquidity
The group remains well capitalised with a common equity tier I ratio of 11,5%, tier I capital adequacy ratio of 12,4% and a total capital adequacy ratio of 14,8%, which are all above both the South African Reserve Bank's minimum requirements and the group's internal targets.
Mr Maree says: "The divestitures in Russia and Argentina will further strengthen the group's capital position. We will have greater clarity on uses of potential surplus capital when we announce FY11 results in March 2012, by which time the proceeds of these transactions may have been received."
Current global economic uncertainty shows little sign of abating and, indeed, the events of the last few weeks point to further volatility and softer prospects for global economic growth.
Consumers remain vulnerable and, despite the expectation that interest rates will remain on hold for the remainder of the year, Standard Bank Group expects only moderate credit growth. While the bank's improved performance towards the end of the reporting period in Corporate & Investment Banking is a positive sign, Standard Bank Group will need to compete aggressively for client mandates to maintain this momentum.
Pipelines across the bank's core sectors remain strong and are growing. Standard Bank Group will continue to focus on acquiring good quality new customers and assets and the bank needs to maintain its vigilance around its levels of expenditure while investing in key growth areas that underpin Standard Bank Group's long-term strategy.
Mr Maree says: "Our strong capital position and our sharpened focus on cost discipline will enable us to build further on the progress we have made in the first half of the year. We anticipate that the banking group's total operating expenses for 2011 will be at the same level as 2010. We will continue our efforts to grow our client franchises and improve returns to shareholders."