The Standard Bank Group: Unaudited condensed consolidated interim results and dividend announcement
These interim results have not been audited or independently reviewed by the group's external auditors. The group's 2014 annual financial information has been correctly extracted from the underlying audited consolidated annual financial statements.
The interim results are presented on a normalised basis, unless otherwise indicated as being on an IFRS basis. For further explanation, refer to the normalised results section.
1H15 refers to the first half year results for 2015. 1H14 refers to the first half year results for 2014. FY14 refers to the full year results for 2014. Change % reflects 1H15 growth on 1H14.
The preparation of the group's results was supervised by the group financial director, Simon Ridley, BCom (Natal), CA(SA), AMP (Oxford). The results were made publicly available on 14 August 2015.
This report contains pro forma financial information.
For further details refer to the pro forma financial information section.
Financial highlights
Headline earnings up 27%
R10 529 million
1H14: R8 306 million
Headline earnings - pro forma continuing operations up 17%
R10 426 million
1H14: R8 925 million
Headline earnings per share up 27%
651 cents
1H14: 513 cents
Return on equity (ROE)
15.1%
1H14: 12.7%
Tier I capital adequacy ratio
13.7%
1H14: 12.7%
Dividend per share up 17%
303 cents
1H14: 259 cents
Cost-to-income ratio
56.7%
1H14: 55.3%
Credit loss ratio
0.99%
1H14: 1.13%
In line with changes to JSE's Listings Requirements during 2014, the group no longer posts a physical copy of this document to our shareholders.
Investors are referred to www.standardbank.com/reporting where a detailed analysis of the group's financial results, including an income statement and a statement of financial position for The Standard Bank of South Africa Limited, can be found.
Overview of financial results
Group results
Group headline earnings and headline earnings per share increased by 27% to R10 529 million and 651 cents respectively. Net asset value per share increased by 6% and group ROE increased to 15.1% from 12.7% in 1H14. An interim dividend of 303 cents per share has been declared, a 17% increase on 1H14.
During the period covered by the interim results, the group completed the disposal of its controlling interest in Standard Bank Plc which was designated as a discontinued operation within the group's income statement and statement of financial position up to the date of the transaction's completion, 1 February 2015. Subsequent to the transaction Standard Bank Plc has been renamed ICBC Standard Bank Plc (ICBCS) and the group's remaining 40% interest has been included as an associate, with equity accounted earnings included in the group's continuing operations results from the disposal date. As a result of this transaction completion, earnings attributable to ordinary shareholders includes R2,8 billion of net disposal gains which have been excluded from headline earnings, consisting primarily of releases to the income statement from the group's foreign currency translation reserve.
Headline earnings to 30 June 2015 reported within the group's discontinued operation include the effects of a partial recovery in respect of insurance claims relating to the external fraud in the Qingdao port in China; a write-down of the residual aluminium exposure in China; and cash flow hedge releases relating to the disposal. The net contribution to headline earnings from the discontinued operation amounts to R171 million. Headline earnings from operations excluding the discontinued operation (continuing operations) increased by 11% to R10 358 million. The commentary which follows refers to the group's continuing banking operations. Liberty Holding Limited's (Liberty) results are discussed separately.
Operating environment
Global growth of 2.2% in the first quarter of 2015 underperformed the International Monetary Fund (IMF) expectations set at the beginning of the year. The shortfall reflected an unexpected output contraction in the United States caused by one-off factors such as a notably harsh winter and port closures, as well as a strong downsizing of capital expenditure in the oil sector. The economic recovery in the Eurozone seems broadly on track, with a generally robust recovery in domestic demand and inflation beginning to increase in spite of uncertainty created by unfolding events in Greece. Growth in output and domestic demand in emerging markets and developing economies broadly weakened.
The decline in commodity prices has impacted sub-Saharan Africa in a highly differentiated manner. Oil exporters have been most affected, while for much of the rest of the region, the impact has been reasonably favourable, with many countries benefiting from lower oil prices although, for a number of them, this positive effect is partly offset by the decline in the prices of other exported commodities. Overall, although economic growth has subsided slightly from the 5% achieved in 2014, sub-Saharan Africa remains one of the world's fastest growing regions.
In South Africa, the lower oil price has temporarily lowered inflation but electricity shortages, accompanied by subdued consumer and business confidence, restricted economic growth to 2.1% in the first quarter of 2015. The non- recurrence of the damaging strikes in 2014, notably in the platinum sector, has provided some support to first half growth. Consumer credit growth has subsided over the period in line with expenditure on durable goods, while business and corporate credit demand has remained relatively robust. Household debt relative to disposable income inched higher from 78.0% in the fourth quarter of 2014 to 78.4% in the first quarter of 2015, although the net wealth of the household sector increased further as growth in the value of fixed and financial assets outpaced the rate of increase in households' financial liabilities.
Revenue
Total income grew by 9% in 1H15, with net interest income (NII) increasing by 8% primarily due to 16% increase in average interest-earning assets, driven mainly by growth in lower-yielding high quality Corporate & Investment Banking (CIB) assets. Margin compression of 28 basis points (bps) resulted mainly from significantly higher growth in CIB assets relative to Personal & Business Banking (PBB) assets. Higher funding costs and the requirement to hold higher levels of high quality liquid assets were largely offset by higher average South African interest rates.
Non-interest revenue (NIR) grew 9% supported by good growth in trading and other income. Fees and commissions were 4% higher than in the prior period as knowledge- based fees and commissions declined by 1% and electronic banking was impacted by low growth in the rest of Africa. Trading revenue increased by 16% due mainly to good growth in fixed income and currency trading up 10%, as well as equities trading, up 52%.
Other revenue growth of 31% was due mainly to profit on the disposal of real estate investments and fair value gains within the property portfolio.
Credit impairments
Total credit impairments were 2% higher than the prior period while the credit loss ratio declined to 0.99% from 1.13%. Credit impairments in CIB increased to R591 million from R450 million in the prior period with its credit loss ratio unchanged at 0.25%.
In PBB, credit impairments were 2% lower than in the prior period and its credit loss ratio improved to 1.48% from 1.58%. Impairments in the vehicle and asset finance business declined to R511 million from R727 million as the overall quality of the portfolio improved. Impairments in mortgage lending and personal lending were broadly unchanged while card debtors' impairments were 4% higher. Increased provisioning required in business lending in a challenging domestic business environment resulted in business lending impairments increasing to R576 million from R430 million previously. Impairments in PBB's rest of Africa operations were 2% higher and the credit loss ratio declined to 1.94% from 2.13% in 1H14.
Operating expenses
Operating expenses increased by 11% over the prior period and the group's cost-to-income ratio increased to 56.7% from 55.3%. Staff expenses increased by 12% while other operating expenses increased by 11%. Growth in staff expenses was affected by the conversion of approximately 1 600 people from temporary to permanent staff in South Africa, as well as earlier recognition of incentive awards and the full-year impact of investment in specialist capabilities. Other operating expenses were affected by higher information technology (IT) expenses related to the systems taken into production including increased amortisation of capitalised software assets.
Loans and advances
Gross loans and advances to customers grew by 11% from 1H14 to 1H15. PBB balances with customers grew by 4% and CIB balances grew by 22%. Residential mortgages recorded growth of 2% with an increase in value of new business partly offset by a higher prepayment rate, while 6% growth was achieved in vehicle and asset finance. Moderate growth of 5% in card debtors and 1% growth in personal loans was supplemented by good growth of 14% each in business and corporate lending. A high level of loans granted under resale agreements at period-end assisted the growth.
Capital, funding and liquidity
The group remains appropriately capitalised with tier I and total capital levels at 13.7% (FY14: 12.9%) and 16.1% (FY14: 15.5%) respectively. The group is in a good position to meet the progressively higher requirements as prescribed by regulatory authorities across markets in which we are present.
Deposits and current accounts from customers increased by 11% with 14% growth in retail priced deposits outpacing the 10% growth in wholesale priced deposits from customers. Strong growth, particularly in retail priced deposits, was recorded in the rest of Africa and outside Africa.
The group maintained its strong liquidity positions within approved risk appetite and tolerance limits. Total liquidity in excess of specific prudential requirements amounted to R294,9 billion as at 1H15 (1H14: R268,1 billion), and remains adequate to meet all internal stress testing, prudential and regulatory requirements. The Basel III liquidity coverage ratio (LCR) was implemented on 1 January 2015 and at 30 June 2015 the group had exceeded the 60% minimum phased-in Basel III LCR requirement. Further available stable funding will likely have to be raised by South African banks to fully meet the proposed Basel III net stable funding ratio liquidity regime. Ongoing impact analysis and engagement through the Banking Association of South Africa and the South African Reserve Bank (SARB) continue to address the current industry shortfall.
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