Standard Bank CEO Sim Tshabalala. Picture: FREDDY MAVUNDA
Standard Bank CEO Sim Tshabalala. Picture: FREDDY MAVUNDA

When it comes to the main components of the SA Inc side of the JSE, banks have proved to be more stable than retailers, and way ahead of industrials such as construction companies.

Granted, there is nothing very exciting about 3% growth in adjusted earnings at Absa and 2% for SA operations at Nedbank. But this has been achieved in an environment in which credit demand is shrinking in real terms.

Standard Bank, which has a wider footprint than either of the others, did well to increase banking earnings by 6% to R11.7bn.

For CEO Sim Tshabalala, Africa is the differentiator that will propel the bank back to the top of the banking sector — though he still has work to do to increase the return on equity from 17.5% to match FirstRand’s 22%-plus.

Jaap Meijer, banking analyst at Dubai-based Arqaam Capital, says the return on risk-weighted assets at Standard Bank is already the best in SA, at 2.9%.

The main disappointment was a fall in the net interest margin from 4.6% to 4.5%.

The SA performance was quite strong, given that improved consumer confidence has not yet translated into higher spending or fixed investment. For example, while home loan lending was up 3%, new mortgage applications fell 4%.

The bank remains the top mortgage lender, with a 29.6% market share — well ahead of Nedbank at 21.7% and Absa at 20.4%. But Standard Bank still lags in vehicle and asset finance, where it is fourth with an 18.7% share, and it fights Absa for supremacy in cards. Its share of deposits is just ahead of FirstRand.

The personal & business banking unit in SA achieved a 5% increase in headline earnings to R6bn, and still accounts for more than half the group’s banking earnings.

It has kept its customer base at 8.1-million. "But we are taking the new competition, such as Discovery Bank and ultimately platforms such as Google and Alibaba very seriously," says Tshabalala. The bank is retraining its customer relations staff, and digitising processes.

In view of the recent cyberattack at its Liberty Holdings subsidiary, the group is also stepping up investment in digital fraud prevention. This has taken its toll on cost, however, and the Jaws ratio — the difference between cost growth and revenue growth — was a negative 1.8%.

The faster-growing African operations played their part. The earnings in the rest of Africa were up 32% and now account for almost a third of the bottom line.

Angola, Ghana, Mozambique, Nigeria and Uganda were the five most profitable countries.

Tshabalala says inflation is easing and exchange rates are stabilising in Africa. The exception was Angola, in which the average exchange rate was down 23% against the dollar over the half-year — but it was the largest source of profits nonetheless.

The retail business is a negligible contributor in Africa, where the corporate & investment bank (CIB) makes the big bucks. But retail Africa’s contribution has more than doubled to R201m, a modest sum as there are now 5-million customers in what it quaintly calls the "Africa regions".

CIB is already fully competitive with FirstRand’s RMB unit. Its earnings were up 8% and, because so much of its revenue is non-rand, it publishes that these earnings were up 13% in constant currency, with Angola the main culprit.

It benefited from a diversity of revenue streams, with both SA domestic and multinational clients: financial institutions, industrials and consumer businesses are the core clients, and there was improved revenue from power, oil and gas, and mining and metals.

Investment banking was the strong performer, with revenues up 9%. CIB’s bad debts are negligible at three basis points (0.03%).

Previously impaired loans in Nigeria were reversed, though there were some impairments in the SA consumer sector, including retailers.

Standard Bank’s results are still affected by businesses in which it does not have management control: it owns 40% of its old London banking operation, now called ICBC Standard Bank Plc, which made a R70m loss. But its 20% in ICBC Argentina was positive and at R202m made a larger contribution than the entire Africa region’s retail business.

Tshabalala has made it clear that there is no intention to change the status of Liberty. "It is key to our vision to become a universal financial services group," he says. It will neither be sold nor become a 100% subsidiary.

But it continues to be a drag on the group, even if the faster growth of the bank makes this less relevant. Liberty’s contribution to group headline earnings of R857m was 3% lower.

Tshabalala remains optimistic in the current soggy climate. "There is scope to grow our lending book judiciously. We still have a very strong franchise in this market."

Standard Bank has been a stalwart of most SA equity portfolios for decades and it remains a reliable earnings and dividend generator. Alongside longtime investors such as Allan Gray, Old Mutual and Stanlib, and its anchor investor, the Industrial & Commercial Bank of China, it has also attracted US giants such as Vanguard and Dimensional, and Singapore’s GIC.

But the new, more competitive environment is likely to test the bank as never before.