Standard Bank says focus on rest of Africa is paying off
But CEO Sim Tshabalala says he sees better times ahead for SA, despite dim prospects for labour market reform and better education
Standard Bank Group said on Thursday that a better contribution from banking in the rest of Africa helped the lender grow profits in the first half of 2019, even as loan write-offs climbed and its joint venture with ICBC was hobbled by a client going bankrupt.
“Standard Bank Group’s African-focused strategy has delivered continued headline earnings growth, driven by the strong underlying momentum in our core operations,” the continent’s biggest lender said.
The rest of Africa contributed 34% of banking headline earnings, from 32% in the first half of 2018. Group CEO Sim Tshabalala said the proportion of profit from the rest of Africa would probably continue to rise.
Standard Bank Group said total profit attributable to ordinary shareholders grew 3.8% to R13.2bn in the six months to end-June. The group raised its interim dividend 6% to 454c a share.
Profits grew even as total credit impairment charges rose by as much as a fifth, albeit off a low base, with write-offs against loans and advances surging 44.4% to R5.2bn.
The group’s credit-loss ratio lifted to 76 basis points from 62 basis points a year before. However, Standard Bank said its credit-loss ratio was expected to remain at the lower end of its target range of 70-100 basis points.
The group also took a hit on its ICBC Standard Bank operation, with its share of losses from the joint venture amounting to R752m.
That unit — which operates from London, Dubai, Hong Kong, Shanghai, Singapore, New York, and Tokyo — was forced to set aside a provision of $110m after a client, Philadelphia Energy Solutions, filed for bankruptcy.
Standard Bank financial director Arno Daehnke said ICBC Standard Bank would probably make a full-year loss in 2019.
Tshabalala said Standard Bank may have to "reluctantly" provide the joint venture with more funding.
Meanwhile, he said he was "highly confident that there are better days ahead for SA", despite the warnings of other business leaders that the country is in a dire state.
Earlier this week, Nedbank CEO Mike Brown said SA was running out of time and money. “Significantly more urgency is required to institute structural reforms to stem the economic and fiscal deterioration currently being experienced in the SA economy," Brown said.
Tshabalala said meaningful labour market reforms, and improvements to SA’s education system, were unlikely to materialise in the short term.
But given that some reforms were taking hold, and considering offshore gas discoveries and a move towards free trade in Africa, SA’s prospects were improving.
Kagiso Asset Management investment analyst Meyrick Barker said the sharp rise in credit-impairment charges in Standard Bank’s numbers “is consistent with evidence of increased consumer stress that has been apparent in the results of a number of consumer-facing corporates”.
But the increase was off of a low base, and Standard Bank’s figures were “only now moving closer in line with average credit losses”, Barker said. “The majority of the increase in credit stress was in the corporate book. Given the current environment, I expect to see a continued rise in credit losses off this base.”
Standard Bank said “strong balance sheet growth” in the period supported net interest income, which rose from R28.7bn to R31.3bn.
On the other hand, pressure on fees and “continued customer migration to digital channels” slowed noninterest revenue growth.
The lender said while flagging global growth and the US-China trade war remained key risks to the global macroeconomic outlook, sub-Saharan Africa was expected to “remain on its recovery path” in 2019 and into 2020.
“East Africa should continue to see robust growth. West Africa is expected to experience a sustained pick-up, driven by a recovery in Angola and Nigeria and continued strong growth in Ghana,” the bank said.
But given SA’s fiscal constraints and weak consumer and business confidence, domestic consumption and investment “are likely to remain subdued”.
“While there may be headwinds in certain markets, the diversity of our businesses and breadth of our footprint provide us with some shelter.”
Standard Bank’s shares were 3.4% up at R176.77 on Thursday morning.