Standard Bank on Thursday reported a 23% increase in headline earnings per share for the year to the end of December 2005.
Headline earnings increased from 570,3 cents to 702,3 cents per share, which was much better than the I-Net Bridge consensus forecast of headline earnings per share of 666,5 cents.
The group declared a dividend of 267 cents compared with 231,5 cents in 2004. The I-Net Bridge consensus forecast — a survey of 10 analysts — was for a dividend per share of 270,7 cents.
The group’s cost-to-income ratio showed a pleasing improvement from 58% in the prior year to 56,6%. The credit loss ratio was 0,41% compared with 0,43% in 2004.
Key factors that affected the group’s results included increased consumer activity in South Africa, rehabilitation of previously impaired loans, increased funding requirements, strong equity markets, intensified competition in emerging markets, and higher compliance costs.
Jacko Maree, Standard Bank group chief executive, said: “South Africa’s impressive economic growth stemmed substantially from strong local demand. High consumer spending was underpinned by relatively low inflation and interest rates.
“Net job creation, the positive effect of rising equity and house prices, increased household disposable income and the growing middle class resulted in improved consumer confidence and provided a strong platform for consumer and business banking in South Africa.”
In 2005, realignments of executive focus areas and reporting lines were implemented to support the group’s growth objectives and provide more flexibility for the deployment of capital, particularly against the background of the recent dispensation announced by the minister of finance.
The dispensation allows a portion of a bank’s assets to comprise exposures in the rest of Africa and, to a lesser extent, internationally without exchange-control approval. This involves de-emphasis of geographical segmentation of businesses in favour of focusing on the three key business segments of the group: Personal & Business Banking, Corporate & Investment Banking and Investment Management & Life Insurance.
This refocusing centres on the leveraging of skills, economies of scale and synergies — regardless of geography — and particularly enhanced customer focus.
Personal & Business Banking comprises 44% of the group’s headline earnings, and grew earnings by 22% in 2005. Corporate & Investment Banking comprises 45% and grew by 7%, and Investment Management & Life Insurance comprises 7% and grew by 51%.
On a geographical basis, South African banking increased headline earnings by 21% with growth of 23% in Personal & Business Banking South Africa and 15% in Corporate & Investment Banking South Africa. Corporate & Investment Banking International’s headline earnings were 28% lower than the prior year.
Strategies to improve performance in this operation are being implemented, including an increase in the talent pool, particularly in client-facing areas, improved systems and a change in emphasis from product to client focus. Earnings growth of 17% in the rest of Africa was slightly below expectation.
The group said it will continue to expand its activities in emerging markets outside South Africa.
In December 2005, a consortium led by Standard Bank entered into an agreement with Bank of America to buy BankBoston Argentina. This transaction remains subject to fulfilment of provisions of the agreement and obtaining the necessary regulatory approvals in both South Africa and Argentina. The acquisition is only expected to be concluded in the third quarter and is not anticipated to affect the 2006 results materially.
Given the group’s interest in Nigeria, it has invested approximately $185-million in its existing banking operation to meet the new minimum capital requirement set by the Central Bank of Nigeria. This will enable the group to evaluate suitable acquisition opportunities.
The group’s net interest income increased by 13% despite lower margins. Non-interest revenue was up 11%. Fees and commission revenue increased by 16% in South Africa. The rest of Africa recorded fees and commissions growth of 15%, while internationally competitive pressures and lower fund-management fees led to a 9% reduction in fee revenue. Trading revenue grew by 8% in South Africa, while Corporate & Investment Banking internationally showed a 9% reduction in trading revenue.
The bank contained its overall growth in operating expenses to 9% with staff costs increasing by 12% and other operating expenses growing by 6%. Across the group, additional compliance related costs amounted to approximately R200-million in 2005.
Most consumer lending categories in South Africa benefited from lower interest rates. Mortgage loans increased by 32%, instalment finance was up 15% and card balances grew by 55%. Corporate & Investment Banking SA recorded growth in loans and advances of 24%. Internationally, loan growth was 45%.
Normalised net asset value grew by 15% to R38-billion. The group’s capital adequacy ratio was reduced to 14,2% from 15%.
On the prospects for the year ahead, Maree said: “The group’s Personal & Business Banking operation is set to continue to benefit from sustained positive economic fundamentals in South Africa, together with increased economic development and organic business growth anticipated across the African continent.
“Corporate & Investment Banking should benefit from potential growth in South African infrastructural and empowerment financing together with an expected increase in corporate credit demand. As we improve the infrastructure and trading teams in our regional operations in emerging economies, the group should be well placed to take advantage of opportunities across most of our chosen markets.
“Investment Management & Life Insurance earnings may be lower in 2006 due to the potential impact of a lower assumed equity and bond-market performance, although real growth in embedded value and dividends should be achieved.
“Taking the above factors into account, we believe that the group’s diversified business spread will enable the group to produce returns to shareholders in 2006 in line with our principal financial objectives of a normalised return on equity of 24% (revised upwards) and normalised headline earnings per share growth of South African inflation (CPIX) plus 10 percentage points.” — I-Net Bridge