Headline earnings: R26 270 million, up 14%
Headline earnings per share (HEPS): 1 640 cents, up 14%
Dividend per share: 910 cents, up 17%
Common equity tier (CET) 1 ratio: 13.5% (FY16: 13.9%)
Net asset value (NAV) per share: 9 830 cents up 4%
Return on equity (ROE): Improved from 15.3% to 17.1%
Cost-to-income ratio: Declined from 56.3% to 55.7%
Credit loss ratio: 86bps (FY16: 86bps)
Standard Bank Group’s financial performance for the year ended 31 December 2017 was strong. The group delivered 14% growth in headline earnings to R26.3 billion and ROE improved to 17.1% from 15.3% in 2016. The group’s capital position remained robust, with a CET1 ratio of 13.5%.
Banking revenue growth remained subdued, credit impairment charges were broadly flat and costs were well managed to deliver positive jaws of 1.0%. Banking activities headline earnings grew 10% to R24.3 billion and ROE improved to 18.0% from 16.8% in 2016. Group headline earnings growth was boosted by an improved contribution from ICBC Standard Bank Plc (ICBCS) and Liberty.
Although less marked than in the first half of the year, currency movements continued to adversely impact the group’s reported results, reducing group and banking headline earnings growth by four percentage points year on year. On a constant currency basis, group headline earnings grew by 18%.
Global macroeconomic conditions were positive during 2017, supporting increased trade volumes and underpinning global growth of 3.7% for the year. Economic growth in sub-Saharan Africa rebounded from 1.4% in 2016 to 2.7% in 2017, underpinned by improving commodity prices and trade. Across many of Standard Bank’s key countries inflation began to ease, stemming interest rate hikes and, in certain countries, providing scope for rate cuts in the second half of the year. Although exchange rates largely stabilised in the second half, many were weaker year on year against the strengthening Rand.
The recovery in the West Africa region was supported by higher oil prices and production volumes, together with higher business and consumer confidence levels. East Africa started to emerge from the drought. In Kenya specifically, higher food price inflation, political uncertainty as a result of the disputed electoral process, and the impact of the regulatory caps and floors introduced in September 2016, resulted in a slow-down in economic activity and credit growth. The South & Central Africa region was supported by improved commodity prices, but countries immediately surrounding South Africa continued to feel the effects of low South African demand.
Growth in South Africa remained weak at 1.3%, continuing its deviation from the upward global trend. During the year, consumer and business confidence remained low as a result of the poor macro environment and heightened political and policy uncertainties. This was exacerbated by successive downgrades by the three major credit rating agencies. As a consequence, demand for credit remained lacklustre, moderating from already subdued levels in 2016.
Personal & Business Banking (PBB)
PBB’s headline earnings of R14.0 billion were 10% higher than the prior year, driven by growth in pre-provision operating profit and lower credit impairment charges as a result of improved collections strategies. An ROE of 20.0% was achieved, an improvement on the 18.8% recorded in the prior year.
PBB in South Africa delivered a strong performance with headline earnings of R13.2 billion, up 11%. Headline earnings from PBB Africa Regions improved by 9% in constant currency to R202 million. PBB Africa Regions’ customer loans expanded by 11%, mainly in Kenya and Namibia, and deposits from customers grew by 15%, with particularly pleasing growth in Nigeria, Kenya and Uganda. PBB Africa Regions’ result was underpinned by customer acquisition in key markets, with a focus on delivering digital solutions. The number of active customers grew by more than 20% in Nigeria, Kenya, Tanzania, and Zambia.
Wealth International grew headline earnings by 32%, supported by growth in USD, GBP and EUR denominated client deposit balances to GBP5.1 billion (2016: GBP4.8 billion) in our operations in the Isle of Man and Jersey.
Corporate & Investment Banking (CIB)
CIB’s headline earnings of R11.5 billion were up 11% on the prior year, and 17% on a constant currency basis. Continued cost discipline and improvements in productivity and efficiency metrics resulted in positive jaws of 4.6%. The credit loss ratio to customers of 44 bps was within CIB’s target range of 40 to 60 bps. Higher headline earnings, together with disciplined capital utilisation, delivered an ROE of 22.2%, an improvement from 19.5% in 2016.
Due to the impact of currency on CIB’s results the commentary that follows refers to the constant currency changes. Transactional Products and Services (TPS) was the outstanding performer, with headline earnings up 32%. TPS plays a core role across the wider CIB franchise, being critical to the wholesale client franchise across the African continent. Revenues grew by 18%, with NII well ahead of the prior year.
Global Markets delivered a resilient performance, growing headline earnings by 13% to R4.6 billion.
Investment Banking revenues were up 6%, reflecting fees earned on a number of landmark transactions and client activity in both debt and equity capital markets.
Other banking interests
Other banking interests recorded headline earnings of R567 million, compared to a loss of R8 million in 2016. The group’s 40% stake in ICBCS contributed R152 million, a significant improvement on the R591 million loss recorded in the prior year. The headline earnings contribution from the group’s 20% stake in ICBC Argentina declined 29% to R415 million off a high base set in 2016. On a constant currency basis, earnings were down 11%.
Liberty’s normalised headline earnings for the year improved by 8% to R2.7 billion, supported by improving SA retail insurance earnings and higher returns from investment markets. Liberty’s capital position remains strong. Liberty’s IFRS headline earnings attributable to the Standard Bank Group, adjusted for the impact of the deemed treasury shares, were R1.4 billion, 50% higher than in the prior year.
The global growth outlook remains positive and relatively synchronised, with recent momentum in advanced economies expected to continue. China’s growth is expected to remain robust. Although upside inflationary pressures are emerging, particularly in the US, monetary policies in the advanced economies are expected to maintain a moderate pace of tightening, which should help sustain capital flows to emerging markets. From a 22-year low in 2016, growth in sub-Saharan Africa is expected to accelerate to 3.3% in 2018, supported by a world-wide economic upswing, and slightly rising commodity prices.
Sim Tshabalala, Standard Bank Group CEO says: “In general, economic prospects across our network of countries are expected to improve, providing a favourable backdrop for our business. We are also optimistic about the prospects in our home market of South Africa. We believe that the positive steps already taken by the ruling party subsequent to its leadership conference will improve business and consumer confidence. This positive sentiment, as well as pent-up demand, should begin to reflect in key economic indicators.
In the face of fast-growing competition from established banks and new competitors, we have a relentless focus on three immediate priorities – to transform into a client-centred, digitally enabled, integrated universal financial services organisation.
Standard Bank is in the final stages of its core banking journey, and by the end of the first quarter of 2018, 93% of our transactional accounts in South Africa would have been migrated onto the core banking platform. With this modernised platform in place, we will increasingly focus on front-end solutions and innovations, the benefit of which will be experienced directly by Standard Bank customers.”
Mr Tshabalala says: “We support faster, more inclusive and more sustainable economic growth and human development in South Africa and throughout the continent we are proud to call our home. At the same time, we are focused on improving the returns we deliver to our shareholders.
Accordingly, Standard Bank has lifted its medium-term ROE target range from 15% - 18% to 18% - 20%. The bank will continue to focus on the levers available to deliver on its targets, including positive jaws, efficient capital management and improving returns from PBB Africa Regions.”
“We stand ready to serve our customers with consistent excellence, wherever they are and whatever financial services they require, online or in-person,” says Mr Tshabalala.
On 15 February 2017 the Competition Commission lodged five complaints with the Competition Tribunal against 18 institutions, including SBSA and SNYS...