Standard Bank, Africa’s largest lender by assets, has signalled profit growth of at least a fifth for its half-year to end-June, but warned that the global environment and outlook for local interest rates has deteriorated.
By the end of May, the Reserve Bank had delivered on the 100 basis points (bps) of interest rate increases Standard Bank had expected for 2022. The lender has upwardly revised that forecast to 175bps of hikes this year.
With continuing Covid-19 lockdowns in China, Russia’s invasion of Ukraine and persistent supply chain disruptions stoking inflation worldwide, Standard Bank cautioned in a Tuesday trading update that higher food, fuel and fertiliser prices were already filtering through to Sub-Saharan Africa. Nevertheless, it said that for the five months to end-May, it still managed to record revenue growth of low double digits on the back of solid client growth.
“A growing client franchise and higher client activity drove higher transactional turnover and supported mid-single-digit growth in banking fees,” group financial director Arno Daehnke said on an investor call after the release of the trading update.
Nevertheless, Daehnke indicated that this was partly due to Covid-19 restrictions in SA being less severe in the five months to end-May 2022 than in the same period the previous year. Daehnke added that in “recent months”, Standard Bank had onboarded between 70,000 and 80,000 new consumer and high net-worth clients a month in SA.
However, that strong client growth has not been without controversy, with the bank recently announcing that it had been forced to suspend staff who had used their own funds to illegitimately activate client bank accounts.
Finance union Sasbo accused Standard Bank earlier this month of placing undue pressure on employees to meet stringent sales targets and said this had led to unethical behaviour.
Daehnke used the investor call to address concerns around the issue, saying that the bank had decided to review its sales process and how it incentivises staff. Nevertheless, he said, the bank would not tolerate unethical behaviour, adding that by the end of last week, it had suspended 51 staff implicated in illegitimately activating client accounts, of which 33 had so far been dismissed.
“We view this behaviour in a very serious light and this is not in line with our values and our culture,” said Daehnke. “Any fraudulent activity is unacceptable and will not be condoned.”
On the recent systems outages the bank had suffered, the most recent of which left customers unable to transact or draw money for six hours on May 21, Daehnke said Standard Bank was “on a journey” to simplify its IT architecture.
“The always-on, always-secure agenda remains a ... very important focus for us,” he said. “Our core systems of record — being SAP and Finnacle, where we invested significant capital — remain robust and effective.”
Standard Bank said in its trading update that it expected headline earnings per share to rise at least 20% for its six months to end-March from the previous period’s 721.4c.
JSE rules require companies to inform the market when earnings are expected to move in a more than 20% range.
While Standard Bank earned higher insurance premiums and had lower pandemic-related claims during the first five months of 2022, these were partially offset by higher short-term claims driven by inclement weather and flooding in KwaZulu-Natal.
Costs grew by high single digits, driven by a combination of increased staff costs, normalisation of certain postpandemic spending and inflation more generally. Credit impairments were marginally lower during the five-month period, while its credit loss ratio was at the lower end of its through-the-cycle target range of 70bps to 100bps.
Uncertain
“It is important to note that as we enter a rising interest rate cycle, the group’s balance sheet provision levels remain well above historic[al] levels,” Daehnke said.
Operational earnings at insurance subsidiary Liberty improved, driven by lower funeral and death claims in both its SA retail and corporate businesses, which also experienced increased sales.
Nevertheless, Daehnke warned that Liberty’s future pandemic-related experience remained uncertain and that its pandemic reserve, which was used to absorb adverse experiences as intended, would be reassessed during the group’s first-half reporting period.
Liberty, whose earnings were consolidated into Standard Bank’s from February 1 as part of the group’s buyout of minority shareholders during the first quarter, remains well capitalised with a solvency capital ratio that is within the target range of 1.5 to 2 times cover.
The bank plans to issue a more detailed trading update once it has more certainty on its expected earnings ranges.
It is scheduled to publish its results for the six months to end-June on August 19.
The bank’s shares closed 2.4% higher at R159.29 on the JSE on Tuesday.
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