Standard Bank Group remains the largest bank in Africa by profits and assets, with a strong balance sheet and a recognised and trusted brand.
2011 results at a glance
Total income increased 5%
Credit impairments reduced 13%
Costs flat year on year
Resulted in headline earnings growth of 21%
Return on equity (ROE) – 14,3% (FY10: 12,5%)
Tier I capital adequacy ratio of 12,0% (FY10: 12,9)
Dividend per ordinary share of 425 cents, up 10% on 2010
Cost-to-income ratio – 58,8% (FY10: 61,4%)
Credit loss ratio – 0,87% (FY10: 1,04%)
Jacko Maree, Standard Bank Group Chief Executive, says: “We made good progress in the year, delivering a much improved set of results and balancing our investment for future growth with tight management of costs.”
Personal & Business Banking delivered headline earnings of R6 billion, surpassing the record profits achieved in 2007 and 40% higher than the prior year.
The main contributors to this result were income growth that outstripped cost growth, the continued reduction in credit impairment charges and well-priced loan growth. Personal & Business Banking grew net interest income 9% on the back of asset growth, improved pricing and reduced funding costs, despite a negative endowment impact mainly due to the low interest rate environment in South Africa.
The results were supported by a 19% reduction in credit impairments from R6,7 billion in 2010 to R5,4 billion in 2011. The cost-to-income ratio improved slightly to 61,3% from 62,2%. An ROE of 21,6% was achieved, a strong improvement on the 16,9% recorded in the prior year.
Corporate & Investment Banking reported headline earnings of R5,8 billion, up 11% on the prior year. This robust result was delivered in a particularly challenging environment. Total revenue grew 4% with excellent growth achieved in fee income and a more subdued result in margin and trading income, given the very competitive and uncertain environment.
Standard Bank’s tightened strategic focus, while important for the long-term competitiveness of its business, has been a constraining factor on revenue growth. Credit impairment charges almost doubled to R1 020 million from a very low base in 2010, and the credit loss ratio increased to 0,30%. The balance sheet remains healthy with impairments as a percentage of total gross loan exposure down to 0,91% from 1,14% in the prior year.
Costs reduced 1%, mainly as a result of well-managed staff costs, and the cost-to-income ratio improved from 62,8% to 60,4%. An ROE of 13,3% was recorded for the period.
Liberty’s results reflect the group’s 53,6% investment in Liberty. Liberty’s headline earnings ended at R2 663 million, 3% higher than 2010. Of these headline earnings, R1 428 million was attributable to Standard Bank Group.
A key positive feature has been the resolution of the policyholder persistency issue in the retail business in South Africa and the substantial improvement in the value of in-force contracts. Normalised equity value (embedded value) improved by 10% to more than R100 per share and return on group equity value was 15,3%.
Reflecting on 2011
Macro and regulatory uncertainty
The group’s strong performance should be seen in the context of ongoing economic uncertainty, particularly in developed countries, and regulatory upheaval worldwide.
Keeping costs flat, while investing for growth
In March last year Standard Bank committed to keep costs flat, which it achieved through a disciplined approach to managing headcount and achieving additional efficiency gains. Standard Bank’s efforts to control cost growth across the group as a whole were balanced with its strategic priority to invest for growth in markets such as Angola, Kenya and Nigeria.
Organic growth in the rest Africa
Standard Bank’s on-the-ground operations in the rest of Africa are showing good results with headline earnings increasing by 38%. The continued investment in infrastructure is bearing fruit as revenues benefited from a larger transacting customer and deposit base. While an acquisition would make sense in markets where we are not yet at scale, we will primarily concentrate on continuing to grow our businesses organically.
Balancing ROE and growth
Standard Bank recognises that its current ROE of 14,3% is too low and it is managing the levers of ROE aggressively to improve the ratio. However it will not undermine its growth plans to defend short-term returns, nor will it pursue growth at levels of return that are too low.
From 2007 to 2010, the group’s annual dividend per share was maintained at 386 cents per share, notwithstanding headline earnings per share declining over this period.
Despite the resulting higher payout ratios, the group’s capital position is strong and will be enhanced in 2012 by releases of capital from strategic disposals. This, together with strong headline earnings per share growth in 2011, meant it was appropriate to consider an increase in the dividend for the 2011 year. A final cash dividend of 284 cents per share has been declared. This declaration results in a total dividend for the year of 425 cents, an increase of 10% and a dividend cover ratio marginally in excess of 2,0 times.
Mr Maree says: “Our strategy is very clear and we know what is required of us to fulfil our aim of being the leading financial services organisation in Africa. We will continue to focus on maintaining our strong position in South Africa, and on growing in our chosen markets in the Rest of Africa.
“We remain committed to right-sizing our operations outside of Africa in a responsible and deliberate manner.
“We look forward to the finalisation of new banking regulations over the coming months. This will enable us to strike the right balance between the regulatory trends to hold more capital and liquidity, the requirements of shareholders for higher returns and the need to facilitate economic growth in our core markets.
“We are anticipating subdued revenue growth in 2012, but intend to maintain focus on costs and to drive further improvement in our ROE.”