Interest rate cuts are bad news for Investec

Investec’s earnings are set to be impacted by declining interest rates in South Africa and the UK.

“The group delivered a solid performance in the first half of the 2025 financial year in an evolving environment,” said Investec CEO Fani Titi.

“Adjusted operating profit grew 7.6% to £475 million, demonstrating continued momentum from our differentiated client franchises. We are pleased to report an ROE of 13.9%, which is putting us on track to achieve the Group’s full-year ROE guidance.

“The group has maintained strong capital and liquidity levels, positioning us well to support our clients and pursue disciplined growth in an improving operating environment.”

The group’s revenue also benefitted from balance sheet growth and the elevated interest rate environment.

The group said that net interest income (NII) was supported by higher average lending books and higher average interest rates. This was, however, offset by the effects of deposit repricing in the UK.

“Non-interest revenue (NIR) growth reflects increased capital-light income from our Banking businesses, as well as strong growth in fees from our SA Wealth & Investment business,” said Investec.

“Investment income also contributed positively to NIR growth given the improving global markets backdrop.”

The group’s credit loss ratio credit loss ratio (CLR) on core loans was 42bps (1H2024: 32bps). This is at the upper end of the Group’s through-the-cycle (TTC) range of 25bps to 45bps.

Expected credit loss (ECL) impairment charges also increased to £66.9 million (1H2024: £46.3 million).

The group said that overall credit quality remained strong, with no evidence of trend deterioration.

Funds under management in South Africa increased by 11.9% to £23.4 billion (31 March 2024: £20.9 billion), which was driven by inflows in our discretionary and annuity funds of R10.0 billion (£428 million), and increased market levels.

These were slightly offset by FX translation losses and non-discretionary outflows of R1.9 billion (£79 million).

When it comes to the financials, the group’s basic and headline earnings per share dropped by 47.6% and 0.5% in rand terms, respectively.

Despite the drop, the group still saw its interim dividend increase to 16.5 pence per share, which translates to a 41.7% payout ratio and within the group’s current 35% to 50% payout policy:

Prospects

Looking ahead, the group said that revenue momentum is expected to be underpinned by average book growth, stronger client activity levels given the expected improvement in GDP growth and continued success in our client acquisition strategies.

These are set to be partly offset by the effects of reducing global interest rates.

The South African Reserve Bank expected to cut rates by 25bps when it meets later today, taking the repo rate to 7.775%. Further cuts are expected in the coming year.

The Bank of England also recently cut interest rates from 25bps to 4.75% earlier this month.

The group expects its credit loss ratio to be within the through-the-cycle (TTC) range of 25bps to 45bps.

Notably, Southern Africa is expected to be close to the lower end of the TTC range of 15bps to 35bps.

The UK & Other credit loss ratio is expected to be between 50bps and 60bps – far above South Africa.

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