Standard Bank Group Limited (SBG or group) delivered record headline earnings of R15.3 billion for the six months to 30 June 2022 (1H22 or the current period), up 33% on the prior period. This performance was underpinned by continued balance sheet and franchise growth. Return on equity (ROE) improved to 15.3% (1H21: 12.9%). Net asset value grew by 15% and the group ended the period (30 June 2022) with a common equity tier one ratio of 13.7% (31 December 2021: 13.8%). The SBG board approved an interim dividend of 515 cents per share. This equates to a dividend payout ratio of 55% for the current period.
The group made good progress on its 2025 commitments, both strategic and financial. The group exceeded internal expectations in terms of revenue growth, delivered strong positive jaws, retained the credit loss ratio within the group’s through-the-cycle range, and ROE moved closer to the 2025 target range of 17% to 20%.
Pre-provision operating profit grew by 20% driven by strong revenue growth. Net interest income growth was driven by strong average balance sheet growth and margin expansion. Net fees grew by 10% supported by a larger client base and increased activity. Trading revenue growth was robust, driven by client trades on the back of market volatility. Revenue growth exceeded cost growth, resulting in positive jaws of 450 basis points. Credit impairment charges were broadly flat leading to an 82 basis point credit loss ratio, down from 88 basis points in the six months to 30 June 2021 (1H21). Standard Bank Activities recorded headline earnings growth of 25% to R13.6 billion and ROE improved to 15.0% (1H21: 13.3%).
Liberty Holdings Limited’s (Liberty) performance improved period on period as the pandemic-related impact waned. The Liberty minority buyout was successfully completed in March 2022 and the process of integrating Liberty into the group is underway. The initial focus has been on aligning the sales and adviser teams to drive client franchise growth, the strategic alignment of the Standard Bank and Liberty Africa Regions’ teams, and defining the path to deliver the financial benefits identified as part of the transaction. The group remains the third largest investment services business on the continent by AUM/AUA, with a combined AUM/AUA of R1.4 trillion.
ICBC Standard Bank Plc (ICBCS) managed risk associated with the emerging market volatility well. It also received an insurance settlement in the current period relating to a previous client loss.
The group’s South African banking business, The Standard Bank of South Africa Limited, recorded a strong rebound. Headline earnings increased by 30% and ROE improved to 14.2%. Revenue grew by double digits, boosted by a strong trading performance and an ongoing recovery in activity-related fees, up 41% and 10% respectively. Credit impairment charges declined but remained above pre-pandemic levels. Costs were well contained to deliver positive jaws of 440 basis points.
Our Africa Regions’ franchise grew revenue by 26% driven by a larger balance sheet, higher interest rates, higher transactional volumes, a recovery in international trade as lockdowns eased, and double-digit growth in trading revenue. The business more than absorbed higher costs (linked to a spike in inflation) to deliver positive jaws of 943 basis points. Africa Regions’ headline earnings increased by 41% (and by 35% in constant currency) and ROE recovered to 20.4%. The top six contributors to Africa Regions’ headline earnings remained Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda. Africa Regions’ contribution to 1H22 group headline earnings was 37%.
In 1H22, geopolitical tensions increased. The global macroeconomic environment deteriorated and inflation spiked. In response, central banks increased interest rates faster than expected. This complex backdrop and uncertain outlook drove market volatility. Funding costs increased, including in the USA and UK, and asset prices fell.
The impact of the global turmoil differed across our sub-Saharan African countries. While higher commodity prices supported exporters, food and fuel importers bore the brunt of higher inflation. In 1H22, interest rates increased in almost all of our countries of operation. Various countries were impacted by election preparations.
The South African economy was shielded by high commodity prices, strong terms of trade and a resilient currency for most of the period. Repo rate increases (1H22: +100 basis points), while faster than expected, were measured. In 1H22, interest rates remained low relative to pre-pandemic levels. Consumer balance sheets are healthier than at the beginning of the previous interest rate hiking cycle (2014). While 1Q22 real GDP growth was stronger than expected, 2Q22 is expected to be negatively impacted by flooding in KwaZulu-Natal and renewed electricity disruptions. Slow growth and inflation pressures increased the social challenges in the country.
Overview of performance
Standard Bank Activities by client segment
Client segments are our primary axis of reporting. The client segments are responsible for designing and executing the client value proposition strategy.
CHNW headline earnings grew by 28% to R3.4 billion and ROE increased to 13.6% (1H21: 10.9%). Strong customer deposit growth (1H22: 12%) and continued gross customer loan growth (1H22: 7%), combined with positive endowment from higher interest rates, supported net interest income. Non-interest revenue benefited from higher transactional activity and annual price increases. Revenue growth marginally exceeded cost growth, resulting in positive jaws of 11 basis points. Credit impairment charges declined by 9%, driven primarily by improved collections and migrations of Covid-19 payment holiday loans into performing loans. CHNW’s credit loss ratio was 137 basis points, within its through-the-cycle range of 100 to 150 basis points.
BCC delivered headline earnings of R3.3 billion, an increase of 59% on 1H21, and an ROE of 28.2% (1H21: 20.0%). Net interest income growth was very strong driven by double-digit balance sheet growth and the positive endowment impact from higher interest rates. Non-interest revenue growth was positively impacted by improved client transactional volumes (as lockdowns eased), increased foreign exchange trade volumes, and improved pricing. Planned investment spend drove costs higher. Revenue growth was well in excess of cost growth, resulting in positive jaws of 870 basis points. Credit impairment charges declined by 23%, driven primarily by lower charges in South Africa. BCC’s credit loss ratio was 99 basis points, just below its through-the-cycle range of 100 to 120 basis points.
CIB headline earnings increased by 16% to R7.4 billion and ROE improved to 20.2% (1H21: 19.2%). Revenue grew by 20% to a new record of R22.7 billion. Growth was underpinned by robust client revenue growth across most sectors, regions and business lines. Net interest income grew by 18%, driven by strong loan and deposit growth and higher returns on government securities, particularly in Africa Regions. Non-interest revenue enjoyed tailwinds from increased flow and structured sales transactions in South Africa, as well as increased foreign currency client flow and margins in Africa Regions. The closure of some landmark deals in Africa Regions drove a strong recovery in investment banking fees. Revenue growth was significantly higher than cost growth resulting in strong positive jaws of 921 basis points. Credit impairment charges reverted to a net charge in 1H22, from a net recovery in 1H21. CIB’s credit loss ratio to customers was 33 basis points, below the bottom of its through-the-cycle guidance range of 40 basis points.
Standard Bank Activities by solution
For the purposes of our secondary reporting axis, we group products and services into banking, insurance and investments.
Banking solutions headline earnings reflected a strong performance, up 30% period on period. The franchise continued to grow clients and balances, and transactional and account activity recovered to well above pre-pandemic levels.
Loans and advances
Gross loans and advances to customers grew by 11% to R1.3 trillion, driven by double-digit growth in the VAF, business and corporate and sovereign portfolios. In South Africa, gross loans to customers grew by 6% to R1.1 trillion. Slow corporate portfolio growth, as clients remained cautious, was more than offset by strong disbursements in home loans, VAF and personal unsecured loans. In Africa Regions, gross loans to customers grew by 29% (21% in constant currency), reflective of our risk appetite and strategy to grow, combined with an increase in disbursements through our digital lending solutions.
Total provisions increased by 4% relative to 30 June 2021 and relative to December 2021. Additional net provisions were raised in all portfolios. Following the improvement in the Covid-19 outlook, the group released R151 million of the R500 million overlay raised in the Centre & Other segment in 2020. As at 30 June 2022, stage 3 loans represented 4.8% of the portfolio and provisions held against these loans reflected 51% coverage (31 December 2021, 4.7% and 52%). Total coverage (as at 30 June 2022) was 3.5%, in line with that reported as at 31 December 2021.
Deposits and funding
Total deposits grew by 13%, supported by growth in current and savings accounts as well as term deposits. Retail-priced deposits grew by 13% linked to client franchise growth. Wholesale-priced deposits grew by 12%, boosted by strong growth in bank deposits. Deposits from customers grew by 10% in South Africa and 20% in Africa Regions. Deposits placed with our offshore operations in the Isle of Man and Jersey grew to GBP6.9 billion as at 30 June 2022 (31 December 2021: GBP6.5 billion).
Revenue grew by 14%, driven by net interest income growth of 15% and non-interest revenue growth of 13%. Strong average balance sheet growth and positive endowment from higher interest rates supported net interest income growth. Net interest margin increased by 22 basis points to 383 basis points, of which 17 basis points related to endowment. The negative impact of tighter pricing was more than offset by mix benefits and endowment tailwinds. Net fee and commission revenue increased by 10% due to higher transactional activity as lockdown restrictions eased as well as the impact of annual price increases. The growth in digital channel volumes continues to outpace that of traditional channels in line with client preference. We continue to expand our digital offering across all areas of our business as we strive to deliver convenient and cost-effective services. Higher customer spending drove higher card acquiring and issuing turnover. Trading revenue grew by 21% period on period to R8.5 billion, surpassing a previous record set in 2H21 of R7.8 billion. This strong performance was due to a combination of strong FX flows in West Africa and South Africa as client demand and FX volatility increased, strong demand for commodity hedging on the back of increased commodity prices, and increased corporate client trading activity in the equities market because of market volatility. Other revenue increased driven by higher bancassurance income, due to lower credit life claims compared to the prior period. Growth in other gains on financial instruments was driven by higher asset valuations in the Investment Banking equity portfolio.
Credit impairment charges
Credit impairment charges increased by 2%. Additional charges were raised as a result of balance sheet growth, restructures and higher CIB credit impairment charges (compared to a net recovery in the prior period). This was largely offset by decreases related to increased collections and improved risk profiles as payment holiday customers resumed payments. The credit loss ratio was 82 basis points, down relative to 1H21 but up relative to the second six months of 2021 (2H21) (1H21: 88 basis points, 2H21: 58 basis points).
Operating expenses increased by 10%, below the average rate of inflation across our markets of 11%. The increase was driven by annual salary increases, higher variable remuneration as well as the normalisation of certain business expenses as Covid-related restrictions were removed, for example marketing and travel. IT cost growth was well contained at 7%. Increased spend on cloud, data and platforms was offset by savings in more traditional areas, e.g. decommissioning of legacy systems and on-premise data centres. The intangible amortisation charge grew by 1% and depreciation was flat period on period. A diligent focus on professional fee spend continued. Premise cost growth was contained as increases in municipal and maintenance costs were largely absorbed by savings from the continued rationalisation of group infrastructure. In addition, in 1H21 the group received an insurance recovery amounting to R233 million (pre-tax) related to a Japanese card fraud which occurred in 2016. The recovery was recorded in other expenses in 1H21. Excluding this recovery from 1H21, cost growth was 9%.
The group’s insurance businesses (excluding Liberty) recorded continued growth in headline earnings, up by 9% to R1.0 billion and an ROE of 66.5% (1H21 ROE: 53.6%). Revenue grew by 6%, supported by a growing policy base and price reviews. Gross written premiums (GWP) increased by 9% period on period, driven by double-digit growth in short-term and funeral GWP. A large decline in credit life claims, as the impact of Covid-19 faded, was offset by an increase in weather-related short-term claims. The latter was mainly due to the particularly rainy weather experienced in the first quarter of the year in South Africa and catastrophic flooding in KwaZulu-Natal (South Africa) in April 2022.
The group’s investments solutions businesses (excluding Liberty) reported an 8% increase in assets under management and administration (AUM/AUA) period on period to R501 billion. Positive net client cash flows in Nigeria and Ghana supported AUM growth, up by 14% and 26% respectively, in constant currency. Revenue grew by 7% as fees from a higher asset base more than offset lower performance fees on the back of the difficult market conditions and lower asset valuations. Operating expenses growth outpaced revenue growth resulting in a 7% decline in headline earnings to R379 million. The business continued to contribute positively to group ROE (1H22 ROE: 34.3%), despite difficult market conditions.
Central and other
This segment includes costs associated with corporate functions, the group’s treasury and capital requirements that have not been otherwise allocated to the client segments. In 1H22, the segment headline loss amounted to R456 million (1H21: loss of R176 million). 1H21 costs were lower than the historical trend. The key drivers of the increase were a negative treasury share adjustment related to client trading activities in SBG Securities, additional withholding tax related to higher dividends paid by the group’s Africa Regions’ subsidiaries, and costs associated with the Liberty minority buyout transaction. In 2020, the group raised a R500 million Covid-related credit overlay which was held centrally. By 30 June 2022, the pandemic had faded and as a result the group chose to release R151 million of the provision.
Liberty’s normalised operating earnings for the current period amounted to R672 million (1H21: R465 million loss). The improvement was driven primarily by the South African Insurance Operations where mortality experience improved and, on the back of a benign Covid-19 fifth wave, no Covid-19 pandemic reserve top-ups were deemed necessary. The Shareholder Investment Portfolio was negatively impacted by market declines across equities and bonds resulting in a net loss for the period. Liberty recorded headline earnings of R485 million (1H21: R222 million). Liberty Group Limited remains well capitalised, with a solvency capital requirement cover ratio of 1.79 times as at 30 June 2022.
The Liberty financial results as consolidated include 57% of Liberty earnings for the first month of the year and 100% for the remainder of the period. On consolidation, the group records an adjustment for Standard Bank Group shares held by Liberty for the benefit of Liberty policyholders (i.e. deemed treasury shares). The treasury share adjustment equated to a negative adjustment of R197 million in the current period (1H21: positive R35 million).
ICBC Standard Bank Plc
ICBCS received a net insurance settlement of USD203 million post tax, relating to a previous client loss. The group’s 40% share thereof equated to R1.2 billion (post tax). ICBCS’ operational performance was the outcome of good risk management and appropriate positioning to take advantage of emerging market opportunities arising from the Russia-Ukraine conflict. In 1H22, including the insurance settlement, ICBCS recorded a profit of USD229 million (1H21: USD72 million). The group’s 40% share of earnings equated to USD92 million or R1.4 billion post translation (1H21: R420 million).
Profit attributable to ordinary shareholders grew by 37% to R15.7 billion. Group net asset value grew by 15% to R210 billion. The group issued new shares equating to R9.5 billion as part of the Liberty minority buyout transaction.
Capital & Liquidity
The group’s capital position remains robust. As at 30 June 2022, the group’s common equity tier 1 ratio (including unappropriated profits) was 13.7% (31 December 2021, 13.8%) and total capital ratio was 16.6% (31 December 2021, 16.9%). The group’s Basel III liquidity coverage ratio amounted to 143% and net stable funding ratio was 122%, both well in excess of the 100% regulatory requirements.
During 1H22, the group successfully raised Basel III compliant additional tier I capital of R1.6 billion.
In 2H22, global growth is expected to slow as tighter financing conditions take effect. Inflationary pressures are, however, expected to fade. The International Monetary Fund is forecasting global real GDP growth of 3.2% and 3.8% in sub-Saharan Africa for 2022. African countries with high sovereign debt levels are likely to face some constraints.
In South Africa, further monetary tightening is expected to negatively impact confidence and demand and constrain real GDP growth to 2.3% in 2022. Electricity supply issues may constrain growth further. Inflation is expected to peak in 2H22, averaging 6.5% in 2022. Standard Bank Research expects additional pre-emptive interest rate hikes of 75 basis points in 2H22 (in addition to the 75 basis point increase in July 2022), followed by a pause in 2023.
We are focused on delivering continued revenue growth through our client-centric strategy, and our ability to deliver new and relevant solutions to our clients through their channel of choice, as and when they need them.
For the 12 months to 31 December 2022 (FY22), net interest income growth is expected to be low double digits year on year, supported by balance sheet growth and endowment tailwinds. As the pandemic unwind fades, non-interest revenue growth is expected to moderate to high single digits. Trading revenue growth for FY22 is expected to be slower than 1H22. We will continue to manage our costs judiciously, with a focus on delivering below-inflation cost growth and positive jaws. We will continue to proactively manage regulatory challenges and related costs in Africa Regions. The group credit loss ratio is expected to remain in the lower half of the group’s through-the-cycle target range of 70 to 100 basis points, subject to the macroeconomic developments relative to the group’s current base case outlook. The group FY22 ROE is expected to improve year on year and remain above cost of equity.
We thank all our colleagues for all that they have done to continue to grow our business and deliver record revenues and earnings.
While the environment remains volatile and uncertain, we are well positioned with strong capital ratios, an unprecedented stock of balance sheet credit provisions and a committed team ready to drive our business forward. We will continue to leverage our significant scale, unrivalled geographic footprint, and leading market positions to differentiate ourselves. We remain committed to delivering positive impact and attractive shareholder returns.
The forecast financial information above is the sole responsibility of the board and has not been reviewed and reported on by the group’s auditors.