Standard Bank’s Africa regions franchise drives earnings growth

Standard Bank Group recorded headline earnings of R21.2 billion in the six months to 30 June 2023 (1H23), up 35% relative to the prior period (1H22) and delivered a return on equity of 18.9%.

According to the statement obtained from the company’s website, this performance can be attributed to the group’s differentiated franchise and Africa-focused strategy.

The South African banking franchise headline earnings grew by 17% to R8.4 billion and ROE improved to 15.2% (1H22: 13.7%).

The Africa Regions franchise headline earnings grew by 65% and ROE improved to 28.4% (1H22: 20.4%). The top six contributors to Africa Regions headline earnings were Ghana, Kenya, Mozambique, Nigeria, Uganda, and Zimbabwe.

What the group said:

Sim Tshabalala, Standard Bank Group Chief Executive Officer said that the performance is underpinned by earnings growth across the group’s three banking businesses and improved earnings and returns in the group’s insurance and asset management businesses.

The CEO said the Africa Regions franchise performed particularly well, contributing 44% to group headline earnings.

Tshabalala noted that Net asset value grew by 10% and the group ended the current period with a common equity tier 1 ratio of 13.4%.

The Group has declared an interim dividend of 690 cents per share which equates to an interim dividend pay-out ratio of 54%.

“Our banking businesses benefitted from continued client franchise growth, larger balance sheets, and increased transaction volumes, as well as certain market and interest rate tailwinds.
Revenue growth was well ahead of cost growth which supported strong positive operating leverage and a decline in the cost-to-income ratio to 50.5%. 
Credit impairment charges increased across all portfolios, reflecting the difficult macroeconomic environment and deteriorating outlook, as well as client-specific strain. 
The credit loss ratio increased to 97 basis points, at the upper end of the group’s through-the-cycle range of 70 to 100 basis points. Banking operations recorded headline earnings growth of 42% to R18.7 billion and ROE improved to 19.0% (1H22: 15.3%).
Our insurance and asset management business unit, which includes Liberty, recorded improved operational performance and headline earnings of R1.4 billion (1H22: R1.1 billion). 
The life insurance operations recorded increases in indexed new premiums and the short-term insurance business recorded increased gross written premiums. Group assets under management increased by 6% to R1.4 trillion.
“During the period, the group pro-actively assisted over 20 000 South African clients through various client assistance initiatives. 
The group also continued to assist clients with their sustainability journeys and structured several innovative market firsts in the period. In 1H23, the group mobilized R28 billion in sustainable finance for clients, of which 40% was for clients in Africa Regions,” says Tshabalala.

Inflation rates remained at elevated levels

Tshabalala noted that in sub-Saharan Africa, higher interest payment obligations have placed pressure on sovereigns with high debt levels, adding that inflation rates remained at elevated levels.

“During 2023, we have welcomed positive actions in Ghana, Kenya, Nigeria, and Zambia which have reduced sovereign credit risks in these markets. The most notable change was the liberalization of the Naira which, although negative for inflation in Nigeria in the short term, is promising for growth and investment in the medium to long term.
Sovereign credit risk remains high, however, in Malawi and has increased in Angola and Mozambique. In February, South Africa and Nigeria were grey listed by the Financial Action Task Force.
South Africa experienced similar inflation and interest rate pressures, exacerbated by continued slow reforms, poor service delivery, and increased electricity and logistics disruptions.
Inflation remained outside the South African Reserve Bank’s (SARB) target range of 3% to 6% for most of the period, resulting in a further increase in the repo rate of 125 basis points to end the period at 8.25%. 
Interest rates have increased by 450 basis points since the start of 2022, placing considerable pressure on consumers and businesses. Consumer and business confidence remained low, and demand declined,” Tshabalala said.

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