Standard Bank continues to reap the benefits of growth in its businesses in sub-Saharan Africa. Group headline earnings and headline earnings per share increased by 5% to R10 861 million and 680 cents respectively. An interim dividend of 340 cents per share has been declared, representing a 12% increase on 1H15 and 2.0 times dividend cover. Headline earnings growth of 5% combined with 9% growth in average equity resulted in a decline in group ROE from 15.1% for 1H15 to 14.4% for 1H16. Banking activities recorded an ROE of 15.2% for 1H16.
The group continued to reap the benefits of ongoing growth in its businesses both in South Africa and its rest of Africa franchise, in the six months to June 30, 2016.
Rest of Africa contributed 31% to the group’s total income, relative to 29% in the prior period, and 25% to the group’s headline earnings, consistent with the prior period.
The global growth outlook going into 2016 was cautiously positive. However, the slow speed of China’s economic re-balancing, sustained low commodity prices and overall weak global demand have resulted in increased volatility and uncertainty. Britain’s vote to leave the European Union (EU) and the associated lack of clarity has exacerbated this.
Across sub-Saharan Africa, oil and commodity export-reliant countries continue to feel the impact of lower prices on the back of excess supply and subdued demand from China. The pace of structural reform, which is required to promote diversification and much needed economic growth, has been slow. In addition, the prolonged and widespread drought brought by El Nino has affected a number of countries.
In South Africa, the mining and agriculture sector headwinds associated with low commodity prices and the persistent drought, continued to place pressure on the economy into 2016. For most of the period under review, the country operated under the threat of a downgrade of the sovereign by ratings agencies to sub-investment grade. Higher rates and above target inflation throughout the period placed additional strain on consumers, manifesting in lower confidence levels and a contraction of consumer credit. The overall macro deterioration, although marked and prolonged, has been more gradual than that experienced in the 2008/2009 crisis, enabling businesses to better prepare and adjust.
Personal & Business Banking (PBB)
PBB’s headline earnings grew 14% to R5 492 million. Strong NII growth of 18% and NIR growth of 14% translated into total income growth of 16%. Credit impairment charges were 3% higher, while operating expenses increased by 17%.
PBB’s ROE increased to 16.4% from 16.1% in the prior period. PBB South Africa earnings rose by 10% to R5.0 billion, PBB outside Africa by 48% to R313 million and PBB rest of Africa earnings increased by R105 million to R158 million.
Transactional products total income grew by 15% while earnings grew by 10% to R1 375 million, despite the operational risk losses associated with the Japan fraud.
Mortgage lending grew total income by 10% while credit impairments fell 13%. Headline earnings grew by 17% to R1 225 million.
Card products total income grew by 17% and earnings grew by 15% to R785 million.
Lending products grew total income by 16% while earnings grew by 13% to R581 million.
Vehicle and asset finance (VAF) grew total income by 16% while earnings increased by 1% to R165 million.
Bancassurance and wealth total income grew by 25% and earnings grew by 16% to R1 361 million.
Corporate & Investment Banking (CIB)
CIB’s headline earnings grew 13% to R4 983 million. Total income grew 17% to R17,7 billion with a strong contribution from the rest of Africa franchise. NII increased 26% reflecting the successes of the liability-led model complimented by targeted credit growth within selected sectors. The tough macro-economic environment impacted customers, in particular in the oil-reliant West Africa region, requiring increased credit impairment charges resulting in a credit loss ratio of 49bps (1H15:25bps). ROE improved to 18.2%.
Global markets recorded strong headline earnings growth of 26% to R2 590 million.
Transactional products and services total income was 21% higher than the prior period. Headline earnings fell 5% to R1 327 million.
Investment banking earnings increased 14% to R1 146 million despite increased NPLs and higher credit impairment charges in the oil & gas and power & infrastructure sectors.
Real estate and principal investment management (PIM) recorded a headline loss of R80 million, largely attributed to the costs associated with the business’ wind down.
Other banking interests
The group’s interests in ICBC Argentina, previously included in Central and other, and ICBC Standard Bank Plc (ICBCS), previously included in CIB’s results, now comprise the group’s other banking interests and represent the group’s associate interests in previously consolidated entities that are held in terms of strategic partnerships with the Industrial and Commercial Bank of China (ICBC). Headline earnings from the group’s other banking interests fell from R208 million in the prior period to R2 million. The headline earnings contribution from the group’s 20% interest in ICBC Argentina equated to R358 million and the loss from the groups 40% stake in ICBCS equated to R356 million.
Liberty’s BEE normalised headline earnings for the six months to June 2016 decreased by 9% to R1 821 million of which the IFRS heading earnings attributable to the group was R886 million. Its earnings were negatively affected due to a combination of generally challenging market conditions and changes specific to Liberty. Liberty’s capital position remains strong.
The latest IMF forecasts expect global GDP growth of 3.1% for 2016, down from 3.4% at the beginning of the year. Although the impact of “Brexit” is expected to be most felt in the United Kingdom and European economies, prolonged uncertainty regarding the outcome of the separation negotiations could result in downside risk to this forecast. Despite the economic headwinds, the IMF expects emerging and developing markets to grow at 4.1%, far outstripping the advanced economies at 1.8%.
Sub-Saharan Africa’s GDP is expected to grow at 1.6% with South Africa trending towards zero growth and a contraction in Nigeria. East and South & Central regions are expected to continue to fare better than the oil exporting countries in West Africa. Ahead of South Africa’s next ratings review in December 2016, considerable effort is being spent by government, business and labour to find ways to promote growth, employment and greater inclusion.
Standard Bank is cognisant of the constraints under which its customers are currently operating. Despite increasing credit provisions to reflect this, the group remains well capitalised and in a position to continue to invest and grow in its targeted sectors and countries.
Sim Tshabalala, Standard Bank Group Chief Executive, says: “We continue to monitor developments in the banking sector and financial markets to ensure that we remain appropriately equipped to deliver on our vision to be the leading financial services organisation in, for and across Africa. We are focused on delivering effective solutions tailored to our customers’ needs and continue to invest in our franchise, our products and our people.
We are committed to delivering through-the-cycle earnings growth and ROE within our target range of 15% – 18% over the medium term. This includes a heightened focus on optimising resource allocations across the group, coupled with tighter management of capital supply, and a diligent focus on costs.”
Results for the six months to 30 June 2016 at a glance:
Headline earnings per share (HEPS): 680 cents, up 5%
Interim dividend per share: 340 cents per share, up 12% from 1H15
Common equity tier I ratio: 13.2% (1H15: 13.1%)
Return on equity (ROE): decreased from 15.1% to 14.4%
Cost to income ratio: improved from 57.3% to 56.8%
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”