Sim Tshabalala, the CEO of Standard Bank, Africa’s largest bank by assets, delivering bumper annual results, said yesterday that the South African economy looked rundown, with pessimism about a quicker turnaround become more entrenched amid unprecedented electricity supply and other structural constraints further straining the continent’s most sophisticated country.
Standard Bank is anticipating interest rates in South Africa to increase by an additional 25 basis points in the first half of the current year, although the lender believes a pause in rate hikes is possible beyond that.
It also anticipates inflation to moderate to 5.9% in the year ahead, while economic growth will likely come in at 1.2%, held back by “severe electricity shortages and structural constraints” to the economy.
“The level of electricity disruptions experienced this year to date are unprecedented. We are concerned about the additional strain this is likely to place on our clients and the economy as a whole,” Tshabalala said as Standard Bank presented its 2022 full-year financials.
While the bank has the capital and appetite to support its clients’ growth, the growth of its balance sheet remains subject to the economic growth, policy and enabling frameworks in the countries in which it operates, and in clients’ confidence to invest.
“The South African economy – and the people of South Africa – have had a very difficult time over the past several years. Much of our hard and soft infrastructure is severely rundown, and there is, understandably, a lot of pessimism,” he said.
Despite the ongoing headwinds, Standard Bank lifted headline earnings for the 2022 full-year period by 37% to R34.3 billion, translating to a 33% rise in headline earnings per share, which amounted to 2 087 cents for the period.
Shares in Standard Bank surged 1% to R180.50 in yesterday’s intraday trade session on the JSE.
Its full-year earnings performance was driven by stronger revenue growth, which overtook growth in costs. Its net asset value grew by 10%, with the board approving a final dividend of 691c per share, which equates to a final dividend payout ratio of 60%.
A larger client base, recovery in transactional and foreign exchange activity, as well as increased digital volumes, drove growth in net fee and commission revenue for the period. Moreover, there was an improvement in the operational performance of Liberty Holdings, which rebounded from a net loss in 2021 to a profit of R2.1 billion in the period under review
“The Liberty minority buyout was successfully completed, and the process of integrating Liberty into the group is well under way. While there is further work to be done, we remain confident that the full integration of Liberty into the group will create sustainable value for shareholders,” explained Tshabalala.
The South African Standard Bank franchise records growth in earnings of 26% and revenue growth of 12% on the back of “balance sheet growth, margin expansion linked to higher interest rates, and a recovery in client activity” to pre-Covid-19 levels.
The economic difficulties obtaining in South Africa reflected in higher credit impairment charges for the lender which surged by 10%, further testament to “deteriorating client trends”. The South Africa operations contributed 47% to Standard Bank’s full-year headline earnings.
Standard Bank – which also has banking in more African countries – processed R436 billion in outward international payments last year, a 52% and 26% growth in values and volumes respectively.
However, it suffered a sharp rise in credit impairment charges of 22% “driven by higher corporate and sovereign-related charges”, mainly related to its Ghanaian sovereign exposures. Ghana, in which Standard Bank is exposed, had its credit ratings downgraded by Fitch which classified it as a “restricted default” owing to its $55 billion (R1 019 billion) sovereign debt as at the end of December last year.
The sovereign debt problems in Ghana widened Standard Bank’s overall credit loss ratio to 75 basis points compared to 73 basis points a year earlier. As a whole unit, the Africa operations grew headline earnings by 36%, while return on equity improved to 21% compared with 18.2% a year earlier.
Revenue from the rest of Africa segment was 30% higher, propelled by “a larger balance sheet, higher interest rates, higher transactional volumes, a recovery in international trade, and strong growth in trading” revenue.
Angola, Kenya, Mozambique, Nigeria, Uganda, and Zambia constituted the top six contributors from the rest of Africa segment, which contributed 36% to the group’s overall earnings for the 2022 full year.
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