Banking group Standard Bank says that its fuel costs to combat load shedding ballooned from R18 million in FY21 to R72 million in FY22.
This was one of the main drivers behind its operating costs and bank branches rising 9% in the latest financial year – along with other hikes in municipal charges.
The bank published its financial results for the year ending December 2022 on Thursday, reporting strong growth in its operations for the year despite the challenging conditions in the country.
Total income was up 18% to R156.92 billion, from R132.72 billion in 2021, while headline earnings per share were up 33% to 2,087.1 cents (2021: 1,573).
Return on equity (ROE) improved to 16.4% (FY21: 13.5%). Net asset value grew by 10% and the group ended the current period with a common equity tier 1 ratio of 13.5% (31 December 2021: 13.8%).
The board approved a final dividend of 691 cents per share which equates to a final dividend payout ratio of 60%, it said.
Operating expenses increased by 12%, below the group’s weighted average inflation rate of 15%. The group said cost growth was impacted by higher inflation across the group’s operating markets and relative rand weakness.
Staff costs increased by 12% due to annual salary increases, an increase in skilled staff, and higher incentive accruals aligned to performance. Information technology costs increased by 13%, largely due to higher spend on cloud migration and software licences.
Premises costs increased by 9% as a result of the aforementioned increased municipal charges and higher fuel-related cost for diesel.
The bank said that its strong growth came against a backdrop of wider economic turmoil in 2022.
The year saw increased geopolitical tensions, the Russia/Ukraine conflict, and China’s Covid-19 related restrictions fuelled inflation, uncertainty, elevated market volatility and an asset price shock.
“Inflation concerns drove monetary policy tightening and higher funding costs weighed on economic activity,” it said. “The aftermath of the KwaZulu-Natal floods, increased electricity disruptions, and stalled structural reforms weighed on sentiment and demand.”
Consumers were particularly hard-hit by the prevailing conditions. The repo rate increases – which were up 325 basis points over the year – were both faster and larger than expected, and by year-end, signs of stress had started to emerge, the bank said.
Looking at the year ahead, the bank said that the challenges are not expected to abate, but prospects are mixed.
Monetary tightening is expected to slow – but another 25 basis point hike in rates is still expected before the middle of the year
Inflation is expected to moderate to 5.9% in the year ahead – but the economy is expected to show weak performance, and South Africa will also have to contend with being greylisted by the Financial Action Task Force (FATF).
Echoing wider market sentiments, Standard Bank said that load shedding and the power crisis are fundamental to South Africa’s outlook – and if any positive movement is to be seen, it will have to come from a resolution to the ongoing energy contraints.
“The level of electricity disruptions experienced year to date are unprecedented. We are concerned about the additional strain it is likely to place on our clients,” the bank said.
“In South Africa, meaningful structural reform and an improvement in the electricity supply could lift confidence and accelerate economic growth, job creation and social upliftment.”