Headline earnings: R12 663 million, up 5%
Headline earnings per share (HEPS): 794 cents, up 5%
Dividend per share: 430 cents, up 8%
Common equity tier (CET) 1 ratio: 13.8% (1H17: 13.7%)
Net asset value (NAV) per share: 9 768 cents up 2%
Return on equity (ROE): Improved to 16.8% from 16.1%
Cost-to-income ratio: 57.1% (1H17: 56.1%)
Credit loss ratio: 70bps (1H17: 96bps)
Sim Tshabalala, Standard Bank Group CEO says: “Our focus on Africa is – and will remain – our main source of sustainable competitive advantage.”
For the period ended 30 June 2018 (1H18) the group delivered headline earnings of R12.7 billion, up 5% on the prior period (1H17), and ROE improved to 16.8% from 16.1% in 1H17. The group’s capital position remained strong, with a CET 1 ratio of 13.8%. Accordingly, an interim dividend of 430 cents per share has been declared, an increase of 8% on the prior period.
Banking activities headline earnings grew 6% to R11.7 billion driven by strong growth in non-interest revenue (NIR) and lower credit impairment charges, in Africa Regions in particular. Banking activities ROE improved to 17.5% from 16.8% in 1H17.
The stronger South African Rand, on average, adversely impacted the group’s reported results. On a constant currency basis, group headline earnings increased by 8%, boosted by Africa Regions which grew earnings 32%. Africa Regions’ contribution to banking headline earnings increased to 32% from 29% in 1H17. The top five contributors to Africa Regions’ headline earnings were Angola, Ghana, Mozambique, Nigeria and Uganda.
Global growth has been less synchronised than previously expected. Key drivers were escalating trade tensions, rising oil prices and higher US yields. Global risk aversion led to increased volatility and emerging market (EM) currency pressures.
In many of the sub-Saharan African countries in which we operate, inflation continued to ease, interest rates declined and exchange rates were relatively stable. One exception was Angola, where the managed devaluation of the currency resulted in a 23% decline in average AOA/USD period on period.
In South Africa (SA), on average, the Rand was stronger, rates lower and inflation surprised on the downside. Consumer and business confidence improved but have not necessarily translated into higher spending or fixed investment. The VAT increase, tax bracket creep and higher fuel prices have all negatively impacted discretionary spending capacity.
Personal & Business Banking (PBB)
PBB’s headline earnings of R6.6 billion were 8% higher than the prior year, driven by customer-led growth in income, responsible cost management and lower credit impairment charges, most notably in Africa Regions. An ROE of 19.4% was achieved, a marked improvement on the 17.8% recorded in the prior period.
PBB SA delivered a resilient performance in a sluggish operating environment, with headline earnings of R6.0 billion up 5%. PBB SA’s focus remains on delivering a consistently excellent customer experience, seamlessly across all touch points, with products relevant to their individual needs. Continued investment in upskilling and empowering our customer facing staff, radically redesigning and digitising processes, and in digital fraud prevention together have resulted in an overall increase in customer satisfaction scores and the number of active customers was maintained from FY17 at 8.1 million customers. This was supported by particularly pleasing growth in the larger middle market segment.
Headline earnings from PBB Africa Regions improved to R201 million from R91 million in the prior period. Gross customer loans expanded 15% and deposits from customers grew 15%, with pleasing balance growth of 18% in current and savings accounts. PBB Africa Regions’ result was underpinned by customer acquisition in key markets, with a focus on delivering digital solutions, and strong trade-related revenue in the Business Banking segment. In 1H18 the total number of active customers grew 4% to 5 million customers, driven by strong growth in Kenya, Ghana, Mozambique, Nigeria, Swaziland and Zimbabwe.
Wealth International grew headline earnings by 31%. USD, GBP and EUR denominated customer deposit balances in our operations in the Isle of Man and Jersey grew to GBP5.1 billion (1H17: GBP4.9 billion). Margins expanded following interest rate increases in the US and UK.
Corporate & Investment Banking (CIB)
CIB’s headline earnings of R5.7 billion were up 8% on the prior period, and 13% on a constant currency basis. CIB’s strategic focus on developing proactive client partnerships that deliver relevant solutions, across sectors, regions and products, to drive Africa's growth delivers diverse revenue streams and supports the sustainability of the franchise. CIB recorded strong performances from multinational corporates and large domestic clients in the Financial Institutions, Industrials and Consumer sectors, with an encouraging turn around in the Power & Infrastructure, Oil & Gas and Mining & Metals sectors. Revenue grew by 4%, and cost growth was relatively well contained at 5%. The credit loss ratio to customers improved materially to 3 bps due to recoveries of previously impaired loans. CIB delivered an ROE of 20.7%, slightly lower than the 21.3% recorded in 1H17.
Due to the impact of currency on CIB’s results, the commentary that follows refers to the constant currency growth rates. Transactional Products and Services delivered a subdued set of results, with headline earnings down 2% on the prior period. Revenue growth of 6% was muted, dampened by margin compression in Nigeria and Angola. Global Markets delivered a stronger performance compared to 1H17, growing headline earnings by 8% to R2.1 billion. Investment Banking revenues were up 9%, reflecting fees earned on a number of landmark transactions and client activity in the Energy and Infrastructure sectors. Credit impairments improved significantly following the recovery of previously impaired loans in the Africa Regions, despite recognising impairments to take account of stress in the Consumer sector in South Africa.
Other banking interests
Other banking interests recorded headline earnings of R132 million, lower than the R212 million recorded in 1H17. ICBCS’s revenue was negatively impacted by lower client flows and margins, and the group’s 40% stake in ICBCS reported a loss of R70 million. The headline earnings contribution from the group’s 20% stake in ICBC Argentina grew 23% to R202 million, off a low base in 1H17. The Peso devaluation diluted a particularly strong local currency performance. On a constant currency basis, earnings were up 74%.
Liberty’s normalised headline earnings for the period improved by 5% to R1.3 billion, supported by higher earnings from SA retail insurance and asset management. Liberty’s IFRS headline earnings attributable to the Standard Bank Group, adjusted for the impact of the deemed treasury shares, were R857 million, 3% lower than in 1H17.
Whilst the global growth outlook for 2018 and 2019 is unchanged at 3.9%, the underlying growth is expected to be less even. Relative to expectations earlier in the year, the International Monetary Fund is expecting the US to grow slightly faster and UK, Europe and EM slightly slower. The broadly supportive EM capital inflows seen in recent periods could reverse if US monetary tightening is faster than expected. This would negatively impact EM currencies and capital markets. Sub-Saharan Africa’s recovery is expected to continue on the back of higher commodity prices. Growth is estimated to increase from 2.8% in 2017 to 3.4% in 2018 and rise further to 3.8% in 2019.
Sim Tshabalala says: “In South Africa, while consumer confidence has improved, delays in resolving key policy issues remain an obstacle to business confidence, fixed investment and growth. Inflation is expected to remain inside the 3% to 6% target range, supporting a flat interest rate outlook for the rest of the year. The group has appetite to grow lending judiciously in South Africa. There is no doubt competitive pressures will continue to increase, however, we will fiercely protect our existing customer franchise and grow by partnering with third parties to build new, innovative offerings and revenue streams.
Our strategy is unchanged and actions being taken are positioning us to deliver contextually-relevant offerings to our customers, to compete effectively against both incumbents and new entrants and to grow our franchise in partnership with our clients, employees and business partners, in a sustainable way.”
“With revenue pressures expected to continue, operating expenses will be a focus area for 2H18 to ensure better full year jaws. More broadly, we will continue to balance growth, resilience and returns to deliver on our medium-term objectives of sustainable growth in earnings and delivering an ROE in our 18% to 20% target range,” says Mr Tshabalala.
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