Standard Bank Group produced a sound financial performance for 2012 and demonstrated good momentum in its businesses.
The group delivered 10% growth in headline earnings to a record R15 billion, and 23% growth in attributable earnings to R16.5 billion, the difference largely due to the R1.5 billion profit realised on the sale of a majority stake in Standard Bank Argentina (SBA) during the year.
- Return on equity (ROE): 14.2% (2011: 14.3%)
- Tier I capital adequacy ratio of 11.7% (2011: 12.0%)
- Net asset value (NAV): 7 092 cents (2011: 6 453 cents)
- Total dividend per ordinary share: 455 cents (2011: 425 cents)
- Cost-to-income ratio: 58.7% (2011: 58.8%)
- Credit loss ratio: 1.08% (2011: 0.87%)
Results at a glance:
- Banking activities achieved top-line revenue growth of 17%
- Credit impairments increased by 37%
- Costs rose 15%
- Headline earnings for banking grew 7%
- Headline earnings for Liberty grew 42%
- Headline earnings for group grew 10%
Highlights in 2012
Standard Bank’s focus on maintaining its position in South Africa and growing in chosen markets in the rest of Africa paid off in 2012. Revenues from the group’s banking activities increased by 17% and in the rest of Africa revenues were up an impressive 38%. This was the result of Standard Bank’s consistent efforts over the last few years to gain new customers, win new mandates and increase its reach, underpinned by significant investment in systems and people.
A major focus area for 2012 was on driving transactional banking revenues. In CIB, Transactional products and services (TPS) revenue grew 32%. In Personal & Business Banking (PBB), Transactional banking revenues grew 14%, despite holding prices flat for personal market customers and, in some instances, reducing prices in South Africa. Transactional banking revenues now make up more than 40% of the group’s banking revenues.
Income growth far exceeded cost growth in the rest of Africa, resulting in a lower cost-to-income ratio for the region, and allowing excellent revenue growth to translate into even better headline earnings growth of 68%.
Liberty results were particularly strong with headline earnings up 42% as a result of favourable investment markets and steady performance from its retail insurance business in South Africa.
Challenges in 2012
Aligning Standard Bank’s operations outside Africa to its Africa-centred strategy requires that it simplify and scale them optimally according to the revenue generation opportunities Standard Bank can reasonably expect and capital required to produce those revenues. During the year Standard Bank continued to downsize its operations outside of Africa in a responsible and deliberate manner. Given the narrowed focus and the prevailing macroeconomic environment, revenues from this operation were not sufficient to cover specific credit impairments and the enlarged cost base of a small investment bank in the new regulatory regime.
The impact and expected benefit of the actions Standard Bank has undertaken to enhance the sustainability of its international operations are outlined below.
- A restructuring process has been undertaken in its operations outside Africa to secure a sustainable reduction in costs of approximately USD100 million a year. These actions taken resulted in a once-off restructure charge of USD89 million (R758 million) in 2012, which included retrenchment costs, early termination of leases and a write-off of capitalised software.
- Divestitures from Russia, Turkey and Argentina completed during the year resulted in proceeds exceeding USD800 million and significantly reduced capital requirements outside Africa. Further, the refocusing of the group’s business model in Brazil has reduced capital utilisation.
- Investment banking assets and the related credit risk have been transferred to The Standard Bank of South Africa Limited (SBSA) balance sheet. Since 2011, Standard Bank has been systematically reducing the risk carried on the Standard Bank Plc balance sheet, particularly investment banking credit risk, through a series of asset transfers to SBSA and by restricting new assets originated by Standard Bank Plc to the SBSA balance sheet.
Standard Bank continues to look at opportunities to improve revenue production given a relatively fixed international cost base.
Further to Standard Bank’s numerous existing co-operation initiatives with the Industrial and Commercial Bank of China Limited (ICBC), the parties are jointly exploring areas of greater co-operation, including global markets and commodities where their respective presences and strengths can be leveraged.
Personal & Business Banking (PBB) reported headline earnings of R7,5 billion which were 27% higher than the prior year. An ROE of 20% was achieved. PBB in South Africa delivered an excellent performance with headline earnings of R7,6 billion, up 25%, and PBB in the rest of Africa reported a loss, albeit smaller than in the prior year.
Corporate & Investment Banking (CIB) reported headline earnings of R4 784 million, down 13% on the prior year. Despite the business delivering strong revenues, with total income up 20% on the prior year, this was more than offset by cost growth (including a once-off restructuring charge) and several large impairment charges.
Liberty’s headline earnings for the year were R3 768 million, of which R2 033 million was attributable to Standard Bank (2011: R1 428 million). All Liberty’s business units are performing in line with, or ahead of expectation, and Liberty now has a stable platform off which to drive its strategy for growth.
A final dividend of 243 cents per share has been declared, resulting in a total dividend for the year of 455 cents per share, an increase of 7% and the dividend cover ratio was increased from 2.0 to 2.1 times.
Standard Bank’s core franchise is healthy and its customer base is strong. Across sub-Saharan Africa, where GDP growth for the region is expected to be 5% in 2013, Standard Bank is allocating resources to businesses which consume less capital and, at the same time, deliver strong revenue growth. Sub-Saharan Africa’s trade links with the developed world will mean that its prospects will be impacted by any weakness in the global economic recovery. Standard Bank expects GDP growth of between 2.5% and 3.0% in South Africa.
Standard Bank’s relationship with ICBC continues to translate into joint initiatives to support the transactional and corporate banking services Standard Bank offers Chinese investors into Africa and Chinese corporates operating within Africa, as well as facilitating the flow of trade between Africa and China. Standard Bank looks forward to this relationship strengthening going forward.
Standard Bank has made good progress in right-sizing itsoperations outside Africa and Standard Bank Plc is now a much smaller, lower risk entity which is fully integrated with Standard Bank’s South African operations.
As a bank servicing the real economy, Standard Bank will continue to provide its customers with the financial services products and services they need to grow.
“We will continue to manage the group for long-term profitability by investing appropriately in our diverse portfolio of businesses and in the capability and wellbeing of our people, while applying a disciplined and prudent approach to risk. We understand that our primary aim to improve the returns we deliver to our shareholders requires that we create lasting value for all our stakeholders,” said Mr Maree.