South Africa’s biggest bank says it will shift its focus to recovery following earnings slump

Standard Bank, South Africa’s biggest lender by assets, said Thursday (20 August), that its results for the six months ended June 2020, reflect a very difficult environment as a result of the impact of Covid-19 and resulting lockdown, particularly in South Africa.

Sim Tshabalala, Standard Bank Group chief executive officer, said: “Globally, the first half of 2020 has been dominated by the Covid-19 pandemic and the distressing human and economic cost thereof.”

Headline earnings per share (HEPS) of 474 cents per share, was down 43%, while the group, like so many others listed on the JSE, did not declare a dividend.

Financial highlights

  • Pre-provision operating profit: R24 295 million, up 4%
  • Headline earnings: R7 541 million, down 44%
  • Common equity tier (CET) 1 ratio: 12.6% (1H19: 14.0%)
  • Net asset value (NAV) per share: 11 265 cents up 7%
  • Return on equity (ROE): 8.5% from 16.2%
  • Cost-to-income ratio: 56.4% (1H19: 57.0%)
  • Credit loss ratio: 169bps (1H19: 76bps)

Standard Bank Group’s Africa Regions business proved relatively resilient, delivering headline earnings growth of 11%, and 7% in constant currency.

South Africa’s headline earnings declined 72% as the pandemic exacerbated an already difficult environment. As a result, Africa Region’s contribution to 1H20 banking headline earnings grew to 62%, it said.

The top six contributors to Africa Regions’ headline earnings remained Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda.

Operating environment

In South Africa, the interrupted power supply extended the last quarter of 2019 recession into the first quarter of 2020. Strict lockdowns brought the economy to a near-standstill, the bank said.

Prospects of a modest economic recovery in 2020 were replaced with expectations for a large decline – South Africa’s real GDP is forecast to decline 8.5% in 2020 followed by a 4.5% recovery in 2021.

The poor economic outlook and declining inflation trend paved the way for cumulative interest rate cuts equating to 275 bps in the period. This has since grown to 300 points, following another rate cut In July. In addition, the South African government implemented a sizeable stimulus package to support those most vulnerable.

Whilst necessary, the additional spending poses a material risk to the public debt trajectory. Fiscal diligence and urgent structural reforms are more important than ever, the lender warned.

“Lockdowns encouraged customers to transition to our digital channels. Digital transaction volumes increased 78% in SA, and comprised 99% of total transactions, while in Africa Regions volumes increased 24% and comprised 94% of total transactions. Physical transactions are expected to continue to decline as the transition to digital accelerates post Covid-19,” said Tshabalala.

Personal and Business Banking (PBB) in South Africa was impacted by negative endowment, elevated impairments, lower transactional volumes and a significant decline in loan disbursements in the second quarter of the year, Standard Bank said.

In July however, customer activity and business turnover levels continued to recover.

Looking ahead, Tshabalala said that the bank will shift its focus to recovery. “Leveraging the group’s strong capital position, we will continue to work with our individual, business and corporate clients, in a responsible manner, to find suitable solutions to enable them to participate and support the much-needed transition to the recovery phase.”

“The world changed fundamentally and, to some extent, permanently, in a matter of weeks. We recognise the need to accelerate our digital delivery and, in parallel, drive operational efficiency. We remain committed to delivering a positive societal, economic and environmental impact,” said Tshabalala.

Given the events of the past several months, Standard Bank said it is unable to provide revised medium-term targets at this time.


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South Africa’s biggest bank says it will shift its focus to recovery following earnings slump