Competition and sluggish economy bite Standard Bank South Africa

Standard Bank Group has reported a solid set of results for the six months ended June 2019, with the South African economy dragging on local performance.

The group reported headline earnings of R13.4 billion, up 6% on the prior period (1H18), and return on equity (ROE) at 16.2%.

“Banking activities recorded strong growth in headline earnings, increasing 10% to R12.8 billion. ROE was 17.5% in line with the prior corresponding period. Strong balance sheet growth period on period supported net interest income,” the bank said.

Pressure on fees and continued customer migration to digital channels dampened non-interest revenue growth, it said, while credit impairment charges increased from a low base in 1H18.

“Stringent cost management  resulted in positive operating leverage, by growing revenue by 1.1% faster than cost.”

After adjusting for currency impacts, in particular the weaker South African Rand, group headline earnings grew 5% on a constant currency basis.

It declared an interim dividend of 454 cents per share, an increase of 6% on the prior period.

Financial highlights

  • Headline earnings, up 6% R13.361 billion
  • HEPS, up 5% to 837 cents
  • Dividend per share, up 6% to 454 cents
  • Common equity Tier 1 ratio at 14.0%
  • Credit loss ration at 0.76%
  • Cost-to-income ratio at 57.0%
  • Return on equity at 16.2%

“The persistent uncertainty associated with the US-China trade war and the threat of a global slow-down weighed on markets in 1H19. A change in the US interest rate outlook provided some support to Emerging Markets flows in 2Q19, as investors searched for yield,” the group said.

In South Africa, ongoing uncertainty weighed on confidence, spending and investment. In 1Q19 GDP declined 3.2%. Despite a weaker average ZAR in 1H19, inflation remained well anchored, allowing for an interest rate cut in July 2019.

South Africa

According to the group, Standard Bank South Africa had a ‘moderate’ performance, with operations hit by the struggling economy.

It noted that all of South Africa’s fiscal metrics have deteriorated over the period, and business and consumer confidence, consumption and investment are likely to remain subdued in 2019.

The outlook for 2019 is poor, with only some recovery expected in second half, the group said. It added that there are better medium-term prospects on a reform trajectory.

“While we expect the environment in South Africa to improve it is likely to be a slow and bumpy recovery,” it said.

The group does not report its client numbers, but said that it lost customers in South Africa, while its margins came under pressure from competitive pricing.

“The number of active clients remained stable, with Africa Regions growth offset by the marginal reduction in South Africa. We continue to remain focused on delivering our client value proposition,” it said.

The group’s local retail portfolio has grown by mid-single digits with mortgages growing lower and vehicle and asset finance growing higher, it said.

“Margin pressure from competitive pricing in South Africa and negative endowments in Africa Regions has continued. In contrast, good asset growth has supported net interest income growth. Non-interest revenue growth has remained subdued. Trading revenue growth has been muted due to the sluggish South African environment,” it said.

The group has also been closing branches in South Africa, which have placed pressure on costs in the first half of 2019. However the group expects positive numbers for the full year.

“We will provide an update on the branch closure process when we report our interim results in August,” it said.

Read: These 104 Standard Bank branches are closing – here’s where you should go instead

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Competition and sluggish economy bite Standard Bank South Africa