Standard Bank expects profits to jump as South Africans cough up for higher interest rates

 ·4 Aug 2023

Standard Bank says its profits are expected to rise over 30% as it benefits from the increase in interest rates.

In a trading statement update for the six-month period ended 30 June 2023, the group said that it continued to benefit from a growing customer base, heightened market volatility and an increase in interest rates.

South African consumers have been hard hit by interest rate increases recently, with the repo rate hitting a 14-year high of 8.25% in July.

However, the pain for South African debt holders is a gain for Standard Bank, which said that it is expecting to see a between 32% – 37% jump in earnings per share (EPS) and a 30% – 35% jump in headline earnings per share (HEPS).

1H22 restatedImplied range1H23 range (cents)
HEPS955.5 30% – 35% increase1 245.1 to 1 292.0
EPS980.632% – 37% increase 1 297.9 to 1 346.0

The group said it will release its results for 1H23 on 17 August 2023.

Not all sunshine and roses

Although the group has seen a rise in profit, it did previously note that it had seen a substantial rise in credit impairments.

Credit impairments for the first five months of 2023 (5M23) increased by 50%, as a larger lending book, rising covering debt and consumer strain all affected the group’s results.

Despite the credit loss ratio for the 5M23 being elevated, it was still in the group’s overall cycle target range of 70-100 basis points.

That said, the credit loss ratio for consumer banking was outside the group’s target range of 100 – 150 basis points, whilst the credit loss ratio for Business and Commercial Banking was also outside the group’s target range of 100 – 120 basis points.

“Credit impairments related to consumer banking customers are currently elevated, primarily in South Africa and, particularly, in home loans, on the back of rapid interest rate hikes and sustained high inflation levels, which has resulted in some customers being unable to meet their debt obligations in full, it said.

Looking positively, the group’s Corporate and Investment Banking credit losses were below the 40 – 60 basis point cycle range for customer impairments.

That said, Standard Bank was not the only bank to record a substantial increases in credit impairments.

African Bank said that its impairment charges on loans and advances grew by an extraordinary 240% to R2.24 billion (H122: R658 million) in its financial results for the six months ended 31 March 2023.

Additionally, in its annual financial results for the year ending February 2023, Capitec also noted that its total net credit impairment charges on gross loans and advances grew by 80% to R6.4 billion (2022: R3.5 billion).

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