The CEO of Standard Bank, the continent’s largest lender by assets, says growth will remain suppressed until some of the reforms undertaken by government start boosting confidence.
“Business confidence is still non-existent at the moment, and the growth in our corporate loans and advances is evidence of this. In addition, local corporates focused on SA are growing more slowly than local corporates investing in Africa. That just shows you the lack of confidence we are facing at the moment,” said CEO Sim Tshabalala.
Standard Bank’s own portfolio of businesses demonstrates this. Return on equity for the local division rose marginally to 16.7% in 2018, while the Africa division delivered return on equity of 24%. The bank operates in 20 African countries outside SA, including Angola, Ghana, Mozambique, Nigeria and Uganda, which accounts for almost a third of the company’s profit.
A strong performance by its non-SA operations, as well as a 31% decline in bad debts, helped the group to report full-year profit that beat analyst expectations. Group headline earnings were up 6% to R27.9bn, allowing it to increase its total dividend for the year 7% to R9.70 per share.
Tshabalala noted signs of improved consumer confidence in SA that became visible in the second half of the year, and which could be seen in the growth of loan books in personal and unsecured loans, vehicle and asset finance, and mortgages.
Gross loans and advances to customers increased 10% to just over R1-trillion, Standard Bank said, with the loan portfolio of its Africa regions showing growth of 31%. Deposits from customers were up 8% to R88.6bn. Its personal and business-banking operations account for more than half of earnings. Liberty’s contribution to headline earnings rose 11% to R1.6bn.
Tshabalala said he believes policy and structural reforms will begin to improve the outlook for investment. “The restructuring of state-owned entities like Eskom, the policy changes affecting broadband spectrum, mining and tourism will result in less red tape, and that will begin to affect business confidence. I was particularly impressed with the president’s determination to improve SA’s competitiveness as measured by the World Bank from the current 83 to below 50.”
The group said with elections in SA in May, growth is likely to remain subdued in the first half “as political and policy uncertainty continues to undermine confidence and delay investment and growth”. While an uptick in growth to 1.3% is expected in the second half, this will depend on policy progress, structural reform, broader economic stimulus and job creation, Standard Bank said. A return of stable electricity supply is critical, it said.
Tshabalala sees the bank’s extensive African footprint, which has been built over the past two decades, as a key competitive advantage. “The factory is built, we are in all the countries we want to be in, and we are not looking for acquisitions,” he said.
The bank most recently entered the Ivory Coast and will ultimately enter Ethiopia when that country’s regulatory regime allows entry of foreign banks.
With the infrastructure in place, Tshabalala believes the combination of high GDP growth (a third of countries in sub-Saharan Africa are growing between 5% and 7% a year) and greater banking penetration should create windfalls for the group in orders of magnitude. /With Bloomberg
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