Standard Bank Group said its credit impairment charges were almost 50% higher in the five months to May 31 over the same period a year before due to larger lending books, consumer strain in South Africa and higher sovereign debt risk in Africa.
Nevertheless the bank’s directors, who said 46% of headline earnings came from strong growth in other African countries, expected that headline earnings per share would increase by more than 20% for the six months to June 30, a trading statement released yesterday showed.
The positive earnings forecast saw the group’s share price rise 2.02% to R177.29 by early yesterday afternoon, continuing an 18.9% surge in the largest bank in Africa’s share price since the end of last month.
Top line growth was strong, driven by balance sheet growth, the endowment impact of higher interest rates, improved customer activity levels and increased use of the group’s risk management capabilities in volatile trading environments, the bank said.
The credit loss ratio was elevated but within the group’s through the cycle target range of 70 to 100 basis points, the directors said.
Credit impairments related to consumer banking customers were elevated, primarily in SA and, particularly, in home loans, due to rapid interest rate hikes and sustained high inflation that had resulted in some customers being unable to meet their debt obligations in full.
Overall, the credit loss ratio for consumer banking clients was outside of the target range of 100 to 150 basis points.
Business and Commercial Banking credit impairments had also increased due to a build-up of new non-performing loans, particularly in single names in Africa Regions and across the small enterprise segment in South Africa. The credit loss ratio for this business was outside the target range of 100 to 120 basis points.
Corporate and Investment Banking corporate credit losses were below the 40 to 60 basis point through the cycle range for customer impairments, although the weak trading results of several clients across had been noted.
“The knock-on impacts of the deterioration in the SA consumer sector into our corporate client base are being carefully analysed,” the bank said.
Sovereign default continued to be a risk and current levels of credit provisions for financial investments were elevated when compared to no impairments in five month period in 2022.
The bank said global economic and geopolitical environment was volatile and global growth had slowed in response to persistently high inflation and interest rates.
“Earlier hopes of inflation easing and steady economic growth in 2023 have receded…interest rates are rising and revenue collections are slowing in many African countries,” the bank said.
The South Africa macro-economy had also deteriorated further since April and expectations were now that inflation and interest rates would be higher for longer, and economic growth would remain constrained.
The group predicted a further 25 basis point increase in interest rates in the second half of the year.
In the five months, Standard’s banking activities recorded revenue growth in excess of 20% over the same period in the prior year.
Higher than expected average interest rates across most markets and good balance sheet growth supported net interest income growth. Non-interest income growth was supported by growth in transactional volumes, fee and commission income and trading revenue.
Operating expenses growth was in the mid-teens, driven by higher fixed remuneration in a high-inflation environment, higher incentives in line with business performance; as well as increased technology spend.
Liberty Holdings Limited continued to record improved claims experience and strong earnings growth despite losses experienced in the Shareholder Investment Portfolio due to market movements.
ICBC Standard Bank plc recorded an operational profit, but its contribution to the group declined due to the non-recurrence of an insurance recovery recognised by the group in January 2022.
Group guidance for the twelve months to December 31, 2023 had changed.
“Our latest estimates indicate higher net interest income growth than the low teen guidance given in March, and higher non-interest revenue growth than earlier mid-single digits guidance. In turn, cost growth is anticipated to be slightly higher than our weighted average inflation rate for the year.”
The credit loss ratio was expected to increase towards the upper end of the group's through-the-cycle target range of 70 to 100 basis points.
The interim results are expected to be release on August 17.
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