Standard Bank : shows good growth in the first half of 2014

14 August 2014

Results for the six months to 30 June 2014 at a glance

• Headline earnings: R8 306 million, up 2% on first half of 2013 (1H13)
• Headline earnings from continuing operations: R9 338 million, up 12% on 1H13
• Headline earnings per share (HEPS): 513 cents, up 1% on 1H13
• Dividend per ordinary share: 259 cents, up 11% on 1H13
• Capital adequacy: Tier 1 capital adequacy ratio of 12.7% (FY13: 13.2%)
• Cost to income ratio: 55.3% from 55.5% in 1H13
• Credit loss ratio: 1.13% from 1.24% in 1H13
• Return on equity (ROE): Decreased to 12.7% from 13.8% in 1H13
• Net asset value (NAV) per share: Increased 8% to 8 269c from 1H13

Headline earnings from continuing operations increased 12% to R9 338m. However, headline earnings which were negatively affected by the performance of discontinued operations, increased by 2% to R8 306m. Headline earnings per share were up 1% while the group's return on equity showed a decrease to 12.7% from 13.8%.

As communicated to shareholders in June and July 2014, the group has commenced investigations and legal proceedings against several parties with respect to the group's rights to physical aluminium held in bonded warehouses in China. There is emerging evidence that the financing arrangements were impacted by fraudulent activities in respect of the physical aluminium. The impact of this on the group's income statement has been estimated at R854m and is reflected as a single line item on the income statement within discontinued operations.

Mr Sim Tshabalala, Standard Bank Group Chief Executive, says: "Total income from continuing operations grew by a pleasing 12%, due mainly to strong growth in the group's rest of Africa subsidiaries and this income growth slightly outpaced expense growth in the period. Credit impairments declined by 1% due to lower corporate credit losses. Net income before taxation grew by a pleasing 20% and profit from our continuing operations, based mainly on the African continent, was 15% higher after accounting for the higher group tax rate. We have good momentum in our operations and we are able to compete effectively by taking full advantage of the group's brand as well as its capital and liquidity strengths."

Operating environment

In South Africa, GDP growth in the first quarter of 2014 slowed to 1.6% and was affected by lost output in the mining sector due to prolonged industrial action. The South African Reserve Bank (SARB) hiked the repo rate unexpectedly in January this year by 50bps and followed up with another 25bps increase at its July meeting as inflation moved outside the target band for three consecutive months. The ratio of household debt to disposable income trended sideways during the period and there was a slowing in private consumption expenditure to 1.8% in the first quarter of 2014.

Strong growth in sub-Saharan Africa continued into 2014 supported by foreign direct investment (FDI) flows in the resource sectors, public investment in infrastructure, and improved agricultural production. Growth of approximately 5% is expected by the International Monetary Fund (IMF) for 2014, similar to the growth rate attained for 2013, accompanied by a positive inflation outlook.

Business units

Personal and Business Banking

PBB recorded headline earnings of R4 193 million, 13% higher than in the prior period. This was assisted by good growth of 14% and 13% respectively in NII and NIR, and slightly lower growth in credit impairments of 10%. PBB's cost-to-income ratio declined marginally to 59.7%, while ROE declined to 16.0% from 16.9% in the prior period due to higher capital allocated. PBB South Africa headline earnings grew by 6%, impacted by the difficult economic conditions affecting personal customers. PBB rest of Africa recorded headline earnings of R53 million from a loss of R201 million in 1H13 supported by broad-based improvement across most of its African operations.

• Transactional products grew headline earnings by 11% to R1 195 million.
• Mortgage lending headline earnings grew by 16% to R900 million.
• Instalment sale and finance leases recorded a headline loss of R29 million affected by a sharp increase in credit impairments.
• Card product headline earnings grew by 5% to R615 million.
• Lending products headline earnings more than doubled to R510 million.
• Bancassurance and wealth delivered headline earnings of R1 002 million, 10% up year-on-year.

Corporate and Investment Banking

CIB's continuing operations delivered headline earnings of R3 853 million, 1% higher than the comparative R3 809 million achieved in the prior year. The discontinued operations, including the fair value adjustment on repo positions relating to aluminium financing in China described earlier, recorded a headline loss of R1 032 million. Total income grew 8% with good NII growth of 16% offset by moderate fee and commission and trading income growth.

• Transactional products and services business delivered another excellent performance, growing earnings 29% to R1 387 million off revenue growth of 16%.
• Global markets' continuing operations grew earnings by 5% over the prior period to R1 585 million off an overall increase of 13% in revenue to R5 270 million.
• Investment banking total revenue fell by 6% to R3 473 million off the high base generated in 1H13, as advisory fee levels suffered from lower client activity noticeable through slower credit demand and extended time to deal closure.

Liberty

Liberty's headline earnings increased by 10% to R1 881 million, of which R1 021 million was attributable to the group. Liberty's long-term insurance operations indexed new business grew 10% while net customer cash inflows were R4.5 billion, including a R912 million contribution from the recently launched retail linked investment services platform. Corporate business customer flows of R0.9 billion were positive for the first time since 2007.

Prospects

Global growth in 2014 is expected to be influenced by developed market countries, while emerging markets are expected to struggle to match the growth rates achieved in 2013. Ben Kruger, Standard Bank Group CEO says: "Sluggishness in the South African economy is expected to persist for the remainder of 2014 and is likely to hamper domestic revenue growth and may affect the confidence of our customer base. However, the group's positioning in South Africa is strong and our selected exposure to expanding economies in sub-Saharan Africa provides a robust platform on which to maintain the operational and financial momentum in our continuing operations. We remain firmly committed to delivering improved returns on equity to shareholders over the medium term while investing in our people and systems to meet the demands of a rapidly evolving environment."

Detailed reports can be seen at www.standardbank.com/reporting.