Standard Bank expects big jump in profit

 ·28 Feb 2024

Standard Bank expected its profits and earnings to grow substantially for the year ended 31 December 2023 (FY23).

In a trading update for the year, the group said that it is satisfied with a reasonable degree of certainty that its earnings per share (EPS) will increase by between 25% and 30% from 2,074.1 cents to between 2,592.6 and 2,696.3.

Headline earnings per share (HEPS) are also expected to increase by between 25% and 30% from 2,050.4 cents to between 2,522.0 and 2,624.5.

FY22RangeFY23 Range
HEPS2 050.423% – 28% higher than FY222 522.0 to 2 624.5
EPS2 074.125% – 30% higher than FY222 592.6 to 2 696.3

Although profits are expected to increase, credit impairment charges will also increase after a change in methodology.

Financial services providers across South Africa have highlighted increased credit impairment charges, with consumers and businesses struggling to pay back debt amid a challenging macro environment.

In a voluntary trading update for the year ending 31 December 2023, Absa said that it expects its credit loss ratio to exceed the through-the-roof cycle target range of 75 to 100 basis points due to high interest rates.

In its financial results for the first half of the 2024 financial year, Woolworths Financial Services, saw its annualised impairment rate increase to 6.3% from the 5.5% in the prior period.

“While this reflects the strain that consumers are under in the current macro-economic environment, it is reducing from the peak of the last quarter of the previous financial year,” Woolworths said.

Standard Bank mended the methodology for recognising interest on Stage 3 loans, which should result in an increase in net interest income and an equal and opposite increase in credit impairment charges.

The change, which has been retroactively applied to the 2022 financial year, will mean that the net interest margin and credit loss ratio will be higher than previously guided.

2022As reportedAdjustmentRestated
Net interest margin, basis points4257432
Credit loss ratio, basis points75883
Cost-to-income ratio, %54.40.553.9

In its last trading update for the first 10 months of 2023, Standard Bank previously said that credit impairment charges growth slowed.

However, it still remained elevated due to balance sheet growth, sovereign risk migrations in African regions, provisions for South African corporates and the strain on consumers amid rapid interest rate increases

For the first 10 months of 2023, the credit loss ratio was below its through-the-cycle target range.

Standard Bank will release its full-year results from FY23 on Thursday, 14 March 2024.

Read: The cheapest bank accounts in South Africa 2024: Capitec vs FNB vs Absa vs Nedbank vs Standard Bank and more

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