Standard Bank headline earnings up

The country’s biggest banking group in terms of assets, Standard Bank on Thursday reported an 11% increase in normalised headline earnings to R6.637-billion for the six months ended June 30 2011.

This translated into normalised headline earnings per share of 418.4 cents, which was an increase of 10%.

Headline earnings per share on an international financial reporting standard basis also reflected a 10% growth at 435 cents, with normalised headline earnings on the same basis coming in 12% higher at R6.562-billion.

The interim dividend per share was unchanged at 141 cents.

“It is encouraging to see that the action we took on costs in 2010 is starting to bear fruit,” Jacko Maree, group chief executive, said.

Modest growth
He added however that the period had been characterised by lower levels of client activity across all the markets in which the group operated, precipitated in the main by ongoing concerns regarding the eurozone, the US budget deficit and the consequent worsening global economic outlook.

“Corporate and investment banking was particularly affected, reporting modest growth in both revenues and profits,” Maree said.

The group’s return on equity (ROE) for the six months was 14.5%, compared to 12.5% for the 2010 year, higher than its cost of equity.

The group’s net asset value (NAV) per share increased from 5 792 cents to 5 926 cents on a normalised basis, or from 5 876 cents to 5 994 cents on an IFRS basis.

Personal and business banking reported headline earnings of R2.5-billion, 30% above the same period last year. The main contributor to this result was the continued reduction in credit impairment charges with some pockets of new business growth.

‘Good commercial relationships’
South African banking activities had a good six months, with the continued reduction in credit impairments helping to offset still sluggish revenues. Headline earnings from the rest of Africa were down 17% as investments in IT, infrastructure and people continued in key growth countries.

As anticipated, personal and business banking in the rest of Africa incurred a slightly bigger loss than in the prior period, with more branches added to the network to position the franchise for growth and attain the desired economies of scale, Maree noted.

“Banking assets grew 4% compared to June 2010 reversing the two-year trend of a shrinking balance sheet. Loans and advances grew 4% with loans to customers up an encouraging 7%. Mortgage loans grew 5% on tentative signs of recovering credit demand in South Africa. The number of applications climbed 36%, assisted by good commercial relationships with independent mortgage originators. This growth was achieved despite higher pricing of loans and robust assessments of customers’ creditworthiness.”

Net interest income reduced by 1% when compared with the first six months of 2010 and was flat on the second half of 2010.

“Non-interest revenue was up 6% compared to the prior period. This encouraging result was achieved despite a 5% drop in trading revenues, as net fee and commission income grew 8% and other revenue climbed 42%.”

Growing and improving
Credit impairment charges of R2.970-billion for the six months were 22% lower than the prior period, mainly as a consequence of the lower interest rate environment. Non-performing loans (NPLs) reduced to 5,1% of the loan book (full year 10: 5.8%; 1H10: 6.4%), with the notable slowing of new defaults contributing to lower NPL impairments.

Looking ahead, Maree said: “Current global economic uncertainty shows little sign of abating and, indeed, the events of the last few weeks point to further volatility and softer prospects for global economic growth. Consumers remain vulnerable and, despite our expectation that interest rates will remain on hold for the remainder of the year, we expect only moderate credit growth.

“While our improved performance towards the end of the reporting period in Corporate and investment banking is a positive sign, we will need to compete aggressively for client mandates to maintain this momentum. Pipelines across our core sectors remain strong and are growing. We will continue to focus on acquiring good quality new customers and assets and we need to maintain our vigilance around our levels of expenditure while investing in key growth areas that underpin our long-term strategy.

“Our strong capital position and our sharpened focus on cost discipline will enable us to build further on the progress we have made in the first half of the year. We anticipate that the banking group’s total operating expenses for 2011 will be at the same level as 2010. We will continue our efforts to grow our client franchises and improve returns to shareholders.” — I-Net Bridge

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