Standard Bank SA’s exposure to government debt amounts to about 13% of the lender’s R2-trillion assets in its biggest market, with Moody’s saying the group’s high exposure to domestic sovereign debt makes the company’s credit profile interlinked with that of the state.
In essence, SBSA business, which has a 23% deposits market share in Africa’s largest economy, has about R272bn exposure directly and indirectly to SA’s multitrillion debt pile, making it one of the biggest financiers of government and state-owned companies.
The SA Reserve Bank has previously raised concerns about the capacity of SA investors to continue absorbing new issuances of SA government bonds in future.
Foreign investors have been selling SA government bonds since 2019, marking a significant structural shift, especially considering the significant increase in government bonds issued during this period.
Domestic unit trusts, pension funds and long-term insurers have stepped in to fill the gap left by foreign money managers.
Standard Bank Group (SBG), Africa’s largest lender by assets, has a total of R3.3-trillion in assets, including its vast rest-of-Africa portfolio.
‘Asset quality risks’
The ratings agency said the group’s exposure to Sub-Saharan Africa posed “relatively higher asset quality risks: given the more challenging operating conditions in several jurisdictions in the continent.
“Nonetheless, related risks are mitigated by SBG’s disciplined approach, strong local knowledge and conservative selection of the more resilient sectors and clients in those markets (such as international and regional multinational corporations),” the ratings agency said.
“Impairment charges for the Africa Regions subsidiaries increased by 78%, driven by sovereign credit risk in Mozambique after the 2024 postelection unrest and the prior year Ghana sovereign credit release and high inflation and interest rates, which reduced lending demand and increased stage 3 loans particularly in West Africa. As a result, the credit loss ratio for the region stood at 147 bps [basis points].”
Standard Bank CFO Arno Daehnke said three weeks ago that the group had downgraded Mozambique’s sovereign debt.
“We have some pressure in Mozambique, where we have downgraded the Mozambique sovereign [debt]. It is not a default but a downgrade and we have provided for that,” he said.
Outside SA, where the lender traces its roots to 1862, SBG is present in 20 other African countries, including Angola, Nigeria, Malawi, Kenya, Namibia and Tanzania.
The group derives more than 40% of its earnings from its rest of Africa operations, which also account for 42% of its income coming from SA, based on its 2024 results, with the remainder coming from its offshore operations and Liberty.
In recent years, numerous African countries have seen sovereign debt rating downgrades, including Egypt, Nigeria, Kenya, Namibia, Uganda, Morocco, Senegal, Ghana, Zambia and Botswana.
In Ghana and Zambia, sovereign debt was restructured after defaults.
Moody’s said it expected SBSA’s asset-quality metrics to improve slightly, as borrowers’ repayment capacity will be supported by interest rate cuts, lower inflation and potentially higher corporate profitability.
“At the same time however, asset risks remain, given the still muted real GDP growth as well as consumers’ limited capacity to absorb additional shocks, with the debt-service cost to household income ratio estimated at over 9%.”
The “Big Blue” as SBG is referred to in high finance circles, derives a chunk of its revenue and profit from its corporate and investment banking, which accounted for 46% of its earnings in the 2024 financial year.
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