Results for the six months to 30 June 2016 at a glance:
Headline earnings: R10 861 million, up 5%
Headline earnings per share (HEPS): 680 cents, up 5%
Interim dividend per share: 340 cents per share, up 12% from 1H15
Common equity tier I ratio: 13.2% (1H15: 13.1%)
Return on equity (ROE): decreased from 15.1% to 14.4%
Cost to income ratio: improved from 57.3% to 56.8%
Credit loss ratio: increased from 99bps to 105bps
Group headline earnings and headline earnings per share increased by 5% to R10 861 million and 680 cents respectively. An interim dividend of 340 cents per share has been declared, representing a 12% increase on 1H15 and 2.0 times dividend cover. Headline earnings growth of 5% combined with 9% growth in average equity resulted in a decline in group ROE from 15.1% for 1H15 to 14.4% for 1H16. Banking activities recorded an ROE of 15.2% for 1H16.
The group continued to reap the benefits of ongoing growth in its businesses both in South Africa and its rest of Africa franchise, in the six months to June 30, 2016.
Rest of Africa contributed 31% to the group’s total income, relative to 29% in the prior period, and 25% to the group’s headline earnings, consistent with the prior period.
The global growth outlook going into 2016 was cautiously positive. However, the slow speed of China’s economic re-balancing, sustained low commodity prices and overall weak global demand have resulted in increased volatility and uncertainty. Britain’s vote to leave the European Union (EU) and the associated lack of clarity has exacerbated this.
Across sub-Saharan Africa, oil and commodity export-reliant countries continue to feel the impact of lower prices on the back of excess supply and subdued demand from China. The pace of structural reform, which is required to promote diversification and much needed economic growth, has been slow. In addition, the prolonged and widespread drought brought by El Nino has affected a number of countries.
In South Africa, the mining and agriculture sector headwinds associated with low commodity prices and the persistent drought, continued to place pressure on the economy into 2016. For most of the period under review, the country operated under the threat of a downgrade of the sovereign by ratings agencies to sub-investment grade. Higher rates and above target inflation throughout the period placed additional strain on consumers, manifesting in lower confidence levels and a contraction of consumer credit. The overall macro deterioration, although marked and prolonged, has been more gradual than that experienced in the 2008/2009 crisis, enabling businesses to better prepare and adjust.
Personal & Business Banking (PBB)
PBB’s headline earnings grew 14% to R5 492 million. Strong NII growth of 18% and NIR growth of 14% translated into total income growth of 16%. Credit impairment charges were 3% higher, while operating expenses increased by 17%. PBB’s ROE increased to 16.4% from 16.1% in the prior period. PBB South Africa earnings rose by 10% to R5.0 billion, PBB outside Africa by 48% to R313 million and PBB rest of Africa earnings increased by R105 million to R158 million.
• Transactional products total income grew by 15% while earnings grew by 10% to R1 375 million, despite the operational risk losses associated with the Japan fraud.
• Mortgage lending grew total income by 10% while credit impairments fell 13%. Headline earnings grew by 17% to R1 225 million.
• Card products total income grew by 17% and earnings grew by 15% to R785 million.
• Lending products grew total income by 16% while earnings grew by 13% to R581 million.
• Vehicle and asset finance (VAF) grew total income by 16% while earnings increased by 1% to R165 million.
• Bancassurance and wealth total income grew by 25% and earnings grew by 16% to R1 361 million.
Corporate & Investment Banking (CIB)
CIB’s headline earnings grew 13% to R4 983 million. Total income grew 17% to R17,7 billion with a strong contribution from the rest of Africa franchise. NII increased 26% reflecting the successes of the liability-led model complimented by targeted credit growth within selected sectors. The tough macro-economic environment impacted customers, in particular in the oil-reliant West Africa region, requiring increased credit impairment charges resulting in a credit loss ratio of 49bps (1H15:25bps). ROE improved to 18.2%.
• Global markets recorded strong headline earnings growth of 26% to R2 590 million.
• Transactional products and services total income was 21% higher than the prior period. Headline earnings fell 5% to R1 327 million.
• Investment banking earnings increased 14% to R1 146 million despite increased NPLs and higher credit impairment charges in the oil & gas and power & infrastructure sectors.
• Real estate and principal investment management (PIM) recorded a headline loss of R80 million, largely attributed to the costs associated with the business’ wind down.
Other banking interests
The group’s interests in ICBC Argentina, previously included in Central and other, and ICBC Standard Bank Plc (ICBCS), previously included in CIB’s results, now comprise the group’s other banking interests and represent the group’s associate interests in previously consolidated entities that are held in terms of strategic partnerships with the Industrial and Commercial Bank of China (ICBC). Headline earnings from the group’s other banking interests fell from R208 million in the prior period to R2 million. The headline earnings contribution from the group’s 20% interest in ICBC Argentina equated to R358 million and the loss from the groups 40% stake in ICBCS equated to R356 million.
Liberty’s BEE normalised headline earnings for the six months to June 2016 decreased by 9% to R1 821 million of which the IFRS heading earnings attributable to the group was R886 million. Its earnings were negatively affected due to a combination of generally challenging market conditions and changes specific to Liberty. Liberty’s capital position remains strong.
The latest IMF forecasts expect global GDP growth of 3.1% for 2016, down from 3.4% at the beginning of the year. Although the impact of “Brexit” is expected to be most felt in the United Kingdom and European economies, prolonged uncertainty regarding the outcome of the separation negotiations could result in downside risk to this forecast. Despite the economic headwinds, the IMF expects emerging and developing markets to grow at 4.1%, far outstripping the advanced economies at 1.8%.
Sub-Saharan Africa’s GDP is expected to grow at 1.6% with South Africa trending towards zero growth and a contraction in Nigeria. East and South & Central regions are expected to continue to fare better than the oil exporting countries in West Africa. Ahead of South Africa’s next ratings review in December 2016, considerable effort is being spent by government, business and labour to find ways to promote growth, employment and greater inclusion. Standard Bank is cognisant of the constraints under which its customers are currently operating. Despite increasing credit provisions to reflect this, the group remains well capitalised and in a position to continue to invest and grow in its targeted sectors and countries.
Sim Tshabalala, Standard Bank Group Chief Executive, says: “We continue to monitor developments in the banking sector and financial markets to ensure that we remain appropriately equipped to deliver on our vision to be the leading financial services organisation in, for and across Africa. We are focused on delivering effective solutions tailored to our customers’ needs and continue to invest in our franchise, our products and our people. We are committed to delivering through-the-cycle earnings growth and ROE within our target range of 15% - 18% over the medium term.