Economic recovery depends on robust rule of law, says Standard Bank CEO
Sim Tshabalala says reinforcing the rule of law will be one of the fastest ways to restore investor confidence
Standard Bank CEO Sim Tshabalala, who announced flat earnings for the year ending 2019, says the fastest way to improve business confidence and spur the investment required to get the economy back on track is to reinforce the rule of law and restore faith in the country’s justice system.
Standard Bank announced results two days after Stats SA revealed GDP for the fourth quarter of 2019 contracted by 1.4%. In a harbinger of things to come, gross fixed capital formation registered a decline of 10% during the quarter, indicating the chances of higher growth in future remain muted.
Standard Bank's delivered a lacklustre year-end performance. Business Day TV unpacked the numbers with the CEO Sim Tshabalala.
The group was the second of the country’s big four banks to report results. Nedbank earlier in the week posted a decline in earnings, as recession-hit retail and corporate clients cut back on investment and consumption spending.
“The only way confidence will come back will be when people see progress on structural reforms,” Tshabalala said.
These include improvements at Eskom, more independent power commissioned and coming on line, sorting out SAA, increased spectrum being allocated, and a functioning National Prosecuting Authority (NPA).
“Most importantly, we need to reinforce the rule of law. That means giving people confidence that the lofty words and values in the constitution mean something,” said Tshabalala.
Tshabalala says he is encouraged by some of the structural reforms undertaken by President Cyril Ramaphosa’s administration, “but they are happening slowly, not fast enough”.
Standard Bank SA (SBSA) lifted headline earnings by 4% to R16.7bn, the Africa Regions increased by 5% to R8.4bn, while Standard Bank Wealth International delivered earnings growth of 25% to R1.25bn.
While the group’s return on equity fell slightly during the year, to 16.8%, the bank’s expenses as a function of income fell as it was able to grow income at a faster rate than costs.
But the bank’s generally solid results were blighted by the performance of ICBC-S based in London, in which Standard Bank is a minority (40%) investor alongside its largest shareholder, the Industrial and Development Bank of China (ICBC).
This meant that the group only advanced headline earnings per share by 1% to R17.66, while the dividend grew by 2% to R9.94 per share.
The group’s share of ICBC-S’s losses increased from R74m in the prior year to R1.4bn in 2019. Most of this was due to the exposure to Philadelphia Energy Services, which accounted for the majority of the loss.
While Tshabalala would gladly salvage what remains of the business and deploy the proceeds into myriad other opportunities in the group’s portfolio, Standard Bank is locked in and can only exit if ICBC decides to acquire the group’s stake.
Not surprisingly, when Standard Bank as the junior partner is bound to continue sharing the losses, ICBC “won’t exit until the company is profitable”, said Tshabalala. He led a delegation that engaged in some “robust conversations” with a view to righting the ship.
This has included reducing headcount, adjusting the product offering and, most importantly, putting in place concrete plans to identify customers and push more volumes through the business.
“We are in a very different place to where we were a year ago, and I am quite confident they will break even this year,” said Tshabalala.
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