Standard Bank Reports on 1H16 unaudited results and dividend announcement
The accounting policies applied in the preparation of these condensed consolidated interim results are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the group's previous audited consolidated annual financial statements with the exception of changes referred to below.
These interim results have not been audited or independently reviewed by the group's external auditors. The group's 2015 annual financial information has been correctly extracted from the underlying audited consolidated annual financial statements.
The interim results discussed in this announcement are presented on an IFRS basis.
1H16 refers to the first half year results for 2016. 1H15 refers to the first half year results for 2015. FY15 refers to the full year results for 2015. Change % reflects 1H16 change on 1H15.
All amounts relate to the group's results unless otherwise specified.
The directors of the group take full responsibility for the preparation of this report.
The preparation of the group's results was supervised by the group financial director, Arno Daehnke BSc, MSc, PhD, MBA, AMP.
The results were made publicly available on 18 August 2016.
This report contains pro forma constant currency financial information. For further details refer below.
In line with changes to the JSE's Listings Requirements during 2014, the group no longer posts a physical copy of this document to its 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.
Highlights
R10 861 million up 5%
Headline earnings
1H15: R10 373 million
680 cents up 5%
Headline earnings per share
1H15: 650 cents
340 cents up 12%
Dividend per share
1H15: 303 cents
9 381 cents up 6%
Net asset value per share
1H15: 8 832 cents
14.4%
Return on equity (ROE)
1H15: 15.1%
13.2%
Common equity tier I ratio
1H15: 13.1%
56.8%
Cost-to-income ratio
- banking activities
1H15: 57.3%
1.05%
Credit loss ratio
- banking activities
1H15: 0.99%
All results in this booklet are presented on an IFRS basis. For financial periods up to the end of December 2015, the group normalised its results to reflect the group's view of the economics of its Black Economic Empowerment Ownership (Tutuwa) initiative and the group's share exposures entered into to facilitate client trading activities and for the benefit of Liberty policyholders.
Overview of financial results
Group results
Shareholders are reminded that the group has reverted to IFRS as its primary reporting basis in 2016. Unless otherwise specified, all figures and movements referred to below are prepared on an IFRS basis. In addition, from the 2016 financial reporting period the group's primary segments comprise the group's banking activities, which consist of Personal and Business Banking (PBB), Corporate and Investment Banking (CIB) and Central and other. The group's banking activities together with the group's other banking interests and Liberty Holdings Limited, represent the group's total operations. The group's interest in ICBC Argentina, previously included in Central and other, and ICBC Standard Bank Plc (ICBCS), previously included in CIB's results, now comprise the group's other banking interests and represent the group's associate interests in previously consolidated entities that are held in terms of strategic partnerships with the Industrial and Commercial Bank of China (ICBC). CIB and Central and other previously reported results have accordingly been restated to exclude the equity accounted earnings relating to these entities.
Group headline earnings and headline earnings per share increased by 5% to R10 861 million and 680 cents respectively. An interim dividend of 340 cents per share has been declared, representing a 12% increase on 1H15 and 2.0x dividend cover. Headline earnings growth of 5% combined with 9% growth in average equity resulted in a decline in group ROE from 15.1% for 1H15 to 14.4% for 1H16. Banking activities recorded an ROE of 15.2% for 1H16.
During 1H16 the group continued to reap the benefits of ongoing growth in its businesses both in South Africa and in the rest of Africa franchise. Rest of Africa legal entities contributed 31% to banking activities' total income, relative to 29% in the prior period, and 27% to the banking activities' headline earnings, from 28% in the prior period.
The 1H15 headline earnings included the financial impact of a partial recovery in respect of insurance claims relating to an external fraud on aluminium held 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 of the group's interest in Standard Bank Plc
(SB Plc) and Brazil, which together totalled R1,2 billion. Furthermore, in the prior period, group earnings attributable to ordinary shareholders included R2,8 billion of non-recurring net disposal gains (excluded from headline earnings) relating mainly to the release from the group's foreign currency translation reserve (FCTR) on disposal of its controlling interest in SB Plc which did not recur in 1H16.
The commentary which follows refers to the group's banking activities. Other banking interests and Liberty's results are discussed separately.
Operating environment
The global growth outlook going into 2016 was cautiously positive, with the International Monetary Fund (IMF) forecasting an improvement in global growth to 3.4% relative to the 3.1% recorded in 2015. The risks highlighted focused on China's demand and the speed of its economic re-balancing, sustained low commodity prices and uncertainty leading to overall weak global demand. In the first quarter, output growth across key markets, other than the US, was better than expected and the oil markets improved from January lows on the back of a decline in supply, broadly supporting the outlook. Subsequently, however, the risks highlighted at the beginning of the year have started to materialise, increasing volatility and uncertainty. Britain's vote to leave the European Union and the associated lack of clarity has only served to exacerbate this. Further US monetary tightening, although widely expected at the beginning of the year, has not materialised and accommodative monetary policy in Europe has continued.
Across sub-Saharan Africa, oil and other commodity export-reliant countries continue to feel the impact of lower prices on the back of excess supply and subdued China demand. More specifically, oil exporters continue to experience strain as the oil price stubbornly remains below production cost levels, placing pressure on those countries' foreign currency reserves and local currencies. The pace of structural reform, which is required to promote diversification and much needed economic growth, has been slow. In addition, the prolonged and widespread drought brought by El Ni?o has affected a number of African countries, in particular across east, south and central parts of the region. Net oil importing countries have benefited from the lower oil prices to moderate the inflationary pressures brought by the drought.
In South Africa (SA), the mining and agriculture sector headwinds associated with low commodity prices and the persistent drought continued to place pressure on the economy into 2016. Whilst the relative currency weakness provided a boost to trade and manufacturing, it was insufficient to offset the headwinds, resulting in GDP contraction year-on-year in 1Q16. For most of the period under review, the country operated under the threat of a downgrade of its sovereign rating to sub-investment grade by ratings agencies. Higher rates and above target inflation throughout the period placed additional strain on consumers, manifesting in lower confidence levels and a contraction of consumer credit. The rand strengthened through the period from the low levels of late January 2016. The overall macro deterioration, although marked and prolonged, has been more gradual than that experienced in the 2008/2009 crisis, enabling businesses and consumers to better prepare and adjust.
Revenue
Total income grew by 15% in 1H16, with net interest income (NII) increasing by 18% on the back of stronger margins, up 23bps to 372bps. The key drivers of the margin expansion were a positive endowment impact, improved PBB loan pricing, and a favourable mix impact.
Non-interest revenue (NIR) grew 12% supported by a growing contribution from the rest of Africa. Net fees and commissions grew by 13% while trading revenue increased by 21% on the back of good growth in fixed income and currencies (FIC) trading, and equities trading, up 19%, and 61% respectively. Other revenue was 21% lower than in the prior period due to the non-recurrence of certain gains on the disposal of real estate investments and fair value gains within the investment portfolio recorded in the prior period.
Credit impairment charges
Total credit impairment charges were 16% higher than the prior period, due primarily to increased credit impairment charges in CIB and to a lesser extent PBB in the rest of Africa. The total credit loss ratio increased from 99bps in the prior period to 105bps. CIB's credit loss ratio increased from 25bps to 49bps and its credit impairment charges increased from R591 million to R1 298 million, in particular on the back of increases in non-performing loans (NPLs) in the oil & gas and power & infrastructure sectors.
PBB's credit loss ratio decreased from 148bps to 141bps, driven by a decline in mortgage related impairment charges period-on-period on the back of sustained good performance of the book as well as better collections. Impairments in commercial and business lending declined while card debtors and vehicle and asset finance (VAF) impairments were 10% and 16% higher respectively. Overall personal unsecured impairments rose, reflective of the difficult macro environment in SA as well as in a number of other countries in which the group operates.
Operating expenses
The group's cost-to-income ratio improved from 57.3% to 56.8% despite operating expenses increasing by 14% over the prior period. Staff costs increased by 16% while other operating expenses increased by 12%. Growth in staff costs was driven by overnight salary increases, the full six month impact of the conversion of temporary staff to permanent employment which began on 1 April 2015 and increases in headcount to support business growth, innovation and digital banking, and wealth and investment initiatives. Other operating expenses include a R300 million loss related to the Japan fraud, increased amortisation of capitalised software and higher premises costs.
The weakness of the rand over the period contributed to 4% of the growth in income and expenses. On a constant currency basis, total income grew by 11% and operating expenses grew by 10%, resulting in positive JAWs of 1%.
Loans and advances
Gross loans and advances to customers grew by 8% from 1H15 to 1H16. CIB loans to customers continued to grow faster than PBB, at 15% and 5% respectively. Residential mortgages recorded growth of 4% relative to 1H15 on the back of an increase in new business registrations. Moderate growth of 2% in card debtors and 3% in personal loans was supplemented by good growth in business and vehicle and asset finance lending, which grew by 6% and 8% respectively.
Capital, funding and liquidity
The group remains appropriately capitalised with capital levels marginally higher than those at year-end. The group's common equity tier I ratio as at 30 June 2016 was 13.2% (FY15: 13.1%) and tier I ratio was 13.6% (FY15: 13.3%). The group's capital position remains strong and more than sufficient to meet the capital requirements as prescribed by regulatory authorities across markets in which the group has a presence.
Deposits and current accounts from customers increased by 7%, compared to the prior period, with retail priced deposits growing at 9%, outpacing wholesale priced deposits from customers, which grew at 6%. Retail priced deposits were 4% lower on 30 June 2016 than on 31 December 2015, adversely impacted by the strengthening of the rand against the USD and several African currencies, most notably the naira. Adjusted for the currency impact, retail priced deposits actually grew slightly period on period.
The group maintained its strong liquidity position within approved risk appetite and tolerance limits. Total contingent liquidity amounted to R329,3 billion as at 30 June 2016 (1H15: R300,6 billion), and remains adequate to meet all internal stress testing, prudential and regulatory requirements. As at 30 June 2016 the group's quarterly average Basel III liquidity coverage ratio (LCR) amounted to 104.8%, exceeding the 70% minimum phased-in Basel III LCR requirement. The group, together with the local banking industry, continues to engage, through the Banking Association South Africa (BASA), with the South African Reserve Bank (SARB) to ensure that the net stable funding ratio (NSFR) framework aligns to local industry conditions and requirements.
Gross loans and advances to customers
|
|
||||||||
|
Change % |
1H16 |
1H15 |
FY15 |
|||||
|
Rm |
Rm |
Rm |
||||||
|
Personal & Business Banking |
5 |
582 076 |
555 695 |
576 078 |
||||
|
Mortgage loans |
4 |
332 782 |
319 168 |
325 867 |
||||
|
Vehicle and asset finance |
8 |
80 929 |
75 229 |
80 278 |
||||
|
Card debtors |
2 |
31 683 |
31 139 |
31 174 |
||||
|
Other loans and advances |
5 |
136 682 |
130 159 |
138 759 |
||||
|
Corporate & Investment Banking |
15 |
370 822 |
323 322 |
363 596 |
||||
|
Corporate loans |
14 |
306 981 |
270 321 |
307 546 |
||||
|
Commercial property finance |
20 |
63 841 |
53 001 |
56 050 |
||||
|
Other services |
(77) |
(8 534) |
(4 824) |
(5 033) |
||||
|
Gross loans and advances to customers |
8 |
944 364 |
874 193 |
934 641 |
||||
|
Deposits and current accounts from customers |
||||||||
|
Change % |
1H16 |
1H15 |
FY15 |
|||||
|
Rm |
Rm |
Rm |
||||||
|
Personal & Business Banking |
10 |
486 515 |
442 915 |
498 189 |
||||
|
Retail priced deposits |
9 |
389 910 |
356 637 |
404 341 |
||||
|
Wholesale priced deposits |
12 |
96 605 |
86 278 |
93 848 |
||||
|
Corporate & Investment Banking |
5 |
598 024 |
571 403 |
572 635 |
||||
|
Other services |
6 |
(4 121) |
(4 373) |
(6 477) |
||||
|
Deposits and current accounts from customers |
7 |
1 080 418 |
1 009 945 |
1 064 347 |
||||
|
Comprising: |
||||||||
|
Retail priced deposits and current accounts |
9 |
389 910 |
356 637 |
404 341 |
||||
|
Wholesale priced deposits |
6 |
690 508 |
653 308 |
660 006 |
||||
|
Deposits and current accounts from customers |
7 |
1 080 418 |
1 009 945 |
1 064 347 |
|
Headline earnings by business unit |
||||||||
|
Change % |
1H16 |
1H15 |
FY15 |
|||||
|
Rm |
Rm |
Rm |
||||||
|
Personal & Business Banking |
14 |
5 492 |
4 834 |
11 237 |
||||
|
Corporate & Investment Banking |
13 |
4 983 |
4 399 |
9 094 |
||||
|
Central and other |
(>100) |
(502) |
(1) |
(8) |
||||
|
Banking activities |
8 |
9 973 |
9 232 |
20 323 |
||||
|
Other banking interests |
(99) |
2 |
208 |
(569) |
||||
|
Liberty |
(5) |
886 |
933 |
2 433 |
||||
|
Standard Bank Group |
5 |
10 861 |
10 373 |
22 187 |
Overview of business unit performance
Personal & Business Banking
PBB's headline earnings grew 14% to R5 492 million. Strong NII growth of 18% and NIR growth of 14% translated into total income growth of 16%. Credit impairment charges were 3% higher than in 1H15 while operating expenses increased by 17%, affected by the impact of the increase in permanent employees for the full period, the R300 million Japan fraud, and higher information technology systems amortisation. PBB's ROE increased from 16.1% to 16.4%. PBB SA's earnings rose by 10% to
R5,0 billion, PBB Outside Africa increased 48% to R313 million and PBB Rest of Africa increased by R105 million to R158 million. On a constant currency basis, total income grew by 13% and operating expenses grew by 14%.
Transactional products headline earnings increased 10% relative to the prior period to R1 375 million, despite the operational risk losses associated with the Japan fraud which dampened earnings. Total income increased by 15% driven by positive endowment and balance sheet growth, partly offset by lower interchange revenue.
Mortgage lending headline earnings grew by 17% relative to the prior period to R1 225 million. Total income grew 10% driven by underlying growth in new business and improved pricing. Credit impairments fell 13% and the credit loss ratio declined from 80bps to 67bps on the back of good performance of the book and better collections.
Card products headline earnings grew 15% to R785 million, supported by strong growth in the rest of Africa. Card products recorded total income growth of 17% on the back of strong NII and NIR despite the headwinds brought about by interchange reform. Increasing consumer strain was reflected in the increase in NPLs and credit loss ratio which increased from 463bps to 495bps.
VAF headline earnings increased 1% to R165 million. SA VAF headline earnings grew 10%; however, this was largely offset by losses in the rest of Africa where the VAF product is still in a developmental phase. Total income growth was strong at 16% on the back of a growing book and improving portfolio yield in SA, despite pressure from increased competition and sharply declining new passenger vehicle sales in SA. The credit loss ratio increased from 141bps to 150bps reflecting an uptick in NPLs.
Lending products headline earnings grew 13% to R581 million, supported by total income growth of 16%. Advances growth was driven by growth in revolving credit plans with muted growth across the other portfolios. Lending products' credit loss ratio declined from 216bps to 202bps.
Bancassurance and wealth earnings grew 16% to R1 361 million. Total income improved by 25% as a result of margin earned on increasing loan and deposit balances, higher revenues associated with the bancassurance arrangement with Liberty and insurance returns.
Corporate & Investment Banking
CIB's headline earnings grew 13% to R4 983 million. Total income grew 17% to R17 717 million with a strong contribution from the rest of Africa franchise. NII increased 26%, reflecting the successes of the liability-led model complemented by targeted credit growth within selected sectors. The tough macro-economic environment impacted customers, in particular in the oil-reliant West Africa region, requiring increased credit impairment charges resulting in a credit loss ratio of 49bps (1H15: 25bps). Continued investment in building client capabilities and capacity, coupled with the currency impact, drove cost growth to 14% and positive JAWs of 3%. CIB ROE improved to 18.2% from a restated 17.7% for the first six months of 2015.
Global markets recorded excellent headline earnings growth of 26% to R2 590 million during the period with income growth of 21% on the back of robust client activity across all regions and the ability to take advantage of market volatility and dislocation. Strong income growth supported positive operating leverage.
Transactional products and services headline earnings were down 5% to R1 327 million. Total income was 21% higher due to good deposit growth, positive endowment impact of rate increases in SA and a strong performance from our investor services business. Strong top-line growth was dented somewhat by an increase in impairment charges off a low base, related primarily to exposures in the rest of Africa portfolio. Continued investment in building the capacity of the business to support franchise growth, with a particular focus on IT systems, contributed to cost growth of 22%.
Investment banking headline earnings increased 14% to R1 146 million despite large increases in impairment charges. Strong NII growth, driven by a combination of moderate growth in loans and advances and margin expansion, was partially offset by a decline in NIR, as difficult market conditions dampened confidence and delayed the closing of transactions. Sustained low commodity prices and continued macro deterioration have led to higher impairment charges, particularly in natural resources linked sectors. Costs were well contained resulting in positive JAWs of 6% for the period.
Real estate investments and principal investment management (PIM) recorded a headline loss of R80 million, largely attributed to the costs associated with the business' wind down.
Central and other
In the prior period, the Central and other segment included a R515 million gain related to the cash flow hedge releases on the disposal of the group's operations in Brazil and the 60% interest in SB Plc. Excluding this amount, headline earnings would have been a R516 million loss. By comparison, in the current period, the segment recorded a R502 million loss.
Other banking interests
Headline earnings from the group's other banking interests fell from R208 million to R2 million. The headline earnings contribution from the group's 20% interest in ICBC Argentina grew 52% to R358 million as this operation continued to trade profitably despite the devaluation of the Argentinean peso in late 2015. In the first half of 2015, the group equity accounted its investment in ICBCS from 1 February and reported an equity accounted loss of R28 million. This loss included the group's share of a partial recovery in respect of aluminium fraud related insurance claims of R347 million, offsetting an operating loss for the five months of R375 million. For the current six-month period, the equity accounted loss was R356 million, reflecting the continued difficult operating environment for revenue generation but some improvement in cost control.
Liberty
The financial results reported are the consolidated results of the group's 55% investment in Liberty. Bancassurance results are included in PBB. Liberty's BEE normalised headline earnings for the six months to June 2016 decreased by 9% to R1 821 million, of which the IFRS headline earnings attributable to the group was R886 million. Operating earnings were down by 15% whilst earnings from the shareholder investment portfolio grew by 4%. The fall in operating earnings was as a result of declines in individual and group arrangements as well as asset management which were partly offset by gains in LibFin Markets and a reduction in central and other. Liberty's capital position remains strong despite weaker sales and earnings in the six months to June 2016.
Prospects
The latest IMF forecasts expect global GDP growth of 3.1% for 2016, down from 3.4% at the beginning of the year. Although the impact of "Brexit" is expected to be most felt in the United Kingdom and European economies, prolonged uncertainty regarding the outcome of the separation negotiations could result in downside risk to this forecast. Despite the economic headwinds, the IMF expects emerging and developing markets to grow at 4.1%, far outstripping the advanced economies at 1.8%.
Sub-Saharan Africa's GDP is expected to grow at 1.6% with South Africa trending towards zero growth and a contraction in Nigeria. East and South & Central regions are expected to continue to fare better than the oil exporting countries in West Africa. Ahead of South Africa's next ratings review in December 2016, considerable effort is being spent by government, business and labour to find ways to promote growth, employment and greater inclusion. We are cognisant of the constraints under which our customers are currently operating. Despite increasing our credit provisions to reflect this, the group remains well capitalised and in a position to continue to invest and grow in our targeted sectors and countries.
We continue to monitor developments in the banking sector and financial markets to ensure that we remain appropriately equipped to deliver on our vision to be the leading financial services organisation in, for and across Africa. We are focused on delivering effective solutions tailored to our customers' needs and continue to invest in our franchise, our products and our people. We are committed to delivering through-the-cycle earnings growth and ROE within our target range of 15% - 18% over the medium term. This includes a heightened focus on optimising resource allocations across the group, coupled with tighter management of capital supply, and a diligent focus on costs.
Declaration of dividends
Shareholders of Standard Bank Group Limited (the company) are advised of the following dividend declarations out of income reserves in respect of ordinary shares and preference shares.
Ordinary shares
Ordinary shareholders are advised that the board of directors (the board) has resolved to declare a final gross cash dividend No. 94 of 340,00 cents per ordinary share (the cash dividend) to ordinary shareholders recorded in the register of the company at the close of business on Friday, 16 September 2016. The last day to trade to participate in the dividend is Tuesday, 13 September 2016. Ordinary shares will commence trading ex dividend from Wednesday, 14 September 2016.
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