Standard Bank “Moving forward” in the rest of Africa

By Shaun Murison 

Standard Bank, the largest lender in Africa, is the third major bank in South Africa to report interim results on 14 August 2014. As with Standard Bank’s sector counterparts, investors will be looking at the divide in revenue between net interest income and non-interest income as well as the level of impairments amidst a pressured consumer environment.

Shaun Murison is a market analyst at IG
Shaun Murison is a market analyst at IG

As a comparative, Barclays Africa Group and The Nedbank Group have both managed to grow their net interest income by around 10% while reducing impairments 7% and 29.8% respectively (Nedbank’s large reduction in bad debt was bolstered by a large single client impairment present in the previous comparative reporting period not present in the current reporting period).

Non-interest income has been sluggish for both companies’ as Barclays reported growth of around 5%, while Nedbank reported flat to negative growth (depending on Gaap or Non-Gaap accounting measures used). Standard Bank is likely to report net interest income growth in line with its peers (between 9% and 10%) while non-interest income growth could be inline, if not marginally ahead of Barclays (significantly ahead of Nedbank) at 6%.

The Standard Bank Group has 17 operations extending into Africa which has been accounting for significant earnings growth in the group.  A fifth of the company’s headline earnings now result from operations in Africa (excluding South Africa). While domestic economic growth remains subdued, the rest of Africa provides a welcome diversity. In 2013 the company witnessed more than 40% growth in the rest of Africa, benefitting from a depreciating rand. However, our domestic currency has depreciated at half the rate for the year thus far than was experienced last year.

Personal and Business Banking amounts to around 49% of the group’s headline earnings. Margins in this department have been improving on the back of retail mortgages, the rest of Africa’s portfolios as well as unsecured lending growth. In light of the recent African Bank debacle, credit losses relative to unsecured loans in particular, will be under close scrutiny for the interim period.

The Corporate and Investment banking division is second biggest contributor to headline earnings (38%) and last year showed the largest percentage of annualised growth. The success in this department considers slow growth in costs, while credit impairments were particularly low. The last reporting period did however benefit from the non-reoccurring provisions from exposure to the Middle East being omitted, which perhaps exaggerated the credit loss ratio.

Liberty holdings contributes in the vicinity of 13% to headline earnings for Standard Bank with the separately listed entity already having released their interim results. The company has reported that headline earnings have improved 10% from the comparative half year period. Just over 50% of Liberty’s earnings are attributable to The Standard Bank Group.

A consensus of estimates predicts Standard Banks revenue for the interim to be R51.114bn, with the company’s adjusted earnings per share to be R5.57. A Thompsons Reuters poll of 14 analysts surveyed have an average rating of hold on Standard Bank.

This article was originally published on IG.com

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