South Africa’s largest bank points to strong recovery – targets dividend returns

Standard Bank says there are signs that an economic recovery is underway in South Africa. The country’s largest lender by assets said it expects to be in a position to declare an interim dividend in August 2021 as a result.

The FY21 dividend payout ratio is expected to be above FY20 levels but below historic levels of 45% – 55%, it said in a voluntary trading update for the four months ended April 2021 and trading statement for the six-month period ending June 2021.

The bank said it expects headline earnings per share (HEPS) for the six-month period ending June 2021 to be more than 40% higher than the reported HEPS for the comparable period (1H20 HEPS: 473.8 cents) and earnings per share (EPS) to be more than 2.8 times the reported 1H20 EPS (1H20 EPS: 236.7 cents).

In 1H20, the the bank said that EPS were negatively impacted by the finalisation of sale of the group’s 20% stake in ICBC Argentina and certain IT intangible impairments.

“Since our operational update in April 2021, the global environment has improved. Upward revisions to the global growth outlook are positive – the IMF upgraded its expectations for global gross domestic product (GDP) growth in 2021 to 6%. The interest rate hiking cycle is expected to be delayed,” Standard Bank said.

Strong global commodity demand and pricing are favourable for sub-Saharan Africa, and South Africa in particular.

In South Africa, it said that strong export prices have driven a trade surplus and the fiscal outlook has improved. “There are signs that an economic recovery is underway, and sentiment has improved. Inflation is expected to remain contained and interest rates are expected to remain low. This should support household demand and expenditure.”

In the year to date, the rand has strengthened relative to other major currencies and most of the currencies in the countries in which the group operates. The stronger rand reduced both revenue and costs by 5% period on period, it pointed out.

In 4M21, mortgage and vehicle and asset finance disbursements in South Africa were well above 4M20 and business disbursements grew double digits. In Africa regions, personal loan volumes were also higher period on period, driven by strong digital channel origination, the lender said.

It noted however, that despite relatively strong Investment Banking origination in April 2021, corporate client balances declined as clients took the opportunity to repay loans. In addition, foreign currency balances declined due to the translation impact related to the stronger rand.

In 4M21, net interest income (NII) declined mid-single digits but was flat in constant currency. Significantly lower margins – driven by lower average interest rates period on period – were partially offset by higher average interest-earning assets, it said.

Net interest margin remained at a similar level to 2H20 (2H20: 353 bps). NII was down low-single digits relative to 4M19.

Card issuing turnover in South Africa was up double-digits period on period. Digital transaction volumes in Africa regions also recorded strong growth, Standard Bank said.

Credit performance in 4M21 was better than expected. Credit impairment charges were significantly lower in 4M21 relative to 4M20, driven by lower forward-looking provisions and releases related to corporate clients, it added.

Group return on equity recovered relative to the 8.9% reported in FY20 and was closer to the group’s cost of equity – FY20: 14.4%.

Read: Standard Bank gearing up for post-covid economic recovery: CEO

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South Africa’s largest bank points to strong recovery – targets dividend returns