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Standard Bank Group Results Announcement

11 March 2022 Standard Bank

Standard Bank Group recorded a strong rebound in earnings driven by a recovery in client activity, an improvement in client balance sheets and real growth in its underlying franchise.

Headline earnings: R25 021 million, up 57%
Headline earnings per share (HEPS): 1 573 cents, up 57%
Common equity tier (CET) 1 ratio: 13.8% (FY20: 13.2%)
Net asset value (NAV) per share: 12 493 cents up 13%
Return on equity (ROE): 13.5% up from 8.9%
Cost-to-income ratio: 57.9% (FY20: 58.2%)
Credit loss ratio: 73 bps (FY20: 151 bps)
Dividend: 511 cents (FY20: 240 cents)

RESULTS OVERVIEW
Standard Bank Group (Standard Bank or group), saw headline earnings for the twelve months to 31 December 2021 (FY21) rebound 57% to R25.0 billion, driven by a strong recovery in client activity, an improvement in client balance sheets and real growth in our underlying franchise. Return on equity (ROE) improved to 13.5% (FY20: 8.9%). Revenue grew by 5% and pre-provision operating profit was up by 5%, both with double digit growth in the second half of the year (2H21 on 2H20). Net asset value increased by 13% and the group ended the year with a common equity tier one ratio of 13.8% (31 December 2020: 13.2%). The Board approved a final dividend of 511 cents per share, a dividend payout ratio of 55% for the full year.

Sim Tshabalala, Standard Bank Group Chief Executive, says: “Despite the pandemic-related disruptions, the group made significant strategic progress across several areas in 2021. The group’s three client segments delivered client franchise growth, expanded their leading market positions and delivered an improved client experience. We now have over 16 million clients”.

Group Results

Banking solutions recorded a strong recovery, with headline earnings up by 62% year on year. Investment and Insurance solutions grew headline earnings by 11% and 3% respectively, supported by asset under management and policy base growth. The group retained its position as the third largest asset manager on the continent. Standard Bank made good progress in building out new revenue streams and scaling digital payments, platforms and partnerships. The group continued to simplify its business and invest in its people, systems, digital solutions and data management, all while maintaining good cost discipline. The Liberty minority buy-out, announced in July 2021, was successfully completed on 1 March 2022.

Standard Bank Activities’ (group excluding ICBC Standard Bank plc (ICBCS) and Liberty Holdings Limited (Liberty)) revenue grew by 5% year on year and 12% in the second six months of the year (2H21 on 2H20). Pressure on net interest income from negative endowment faded, activity-related fees continued to recover, and trading revenue remained robust. Revenue growth exceeded cost growth, resulting in positive jaws of 54 basis points. Credit impairment charges declined 52% but remained above pre-pandemic levels. Standard Bank Activities recorded headline earnings growth of 59% to R24.9 billion and ROE recovered to 14.7% (FY20: 9.6%).

Liberty Holdings Limited (Liberty) showed progress operationally but was negatively impacted by excess claims and a pandemic provision top-up. ICBC Standard Bank Plc (ICBCS) benefited from attractive market conditions and client flows.

The group’s South African business, The Standard Bank of South Africa Limited, bounced back strongly with headline earnings increasing by 172% and ROE recovering to 12.5%. Revenue grew by double digits, boosted by higher trading and other revenues up by 31% and 67% respectively. Credit charges more than halved and costs were well contained to deliver positive jaws of 198 basis points.

Standard Banks’ Africa Regions’ franchise delivered strong top line growth in local currency terms. Inflation and weaker currencies in key markets dampened translated earnings growth. Revenue growth from ongoing client acquisition, balance sheet growth and improved activity was offset by higher costs driven by inflation and investment in our digital lending and payment solutions. Headline earnings declined by 2% (grew by 6% in constant currency) and ROE remained accretive at 18.2%. Africa Regions’ contribution to FY21 group headline earnings was 36%. The top six contributors to Africa Regions’ headline earnings remained Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda.

In 2022, global growth is expected to remain above trend and financing conditions are expected to tighten. The International Monetary Fund is forecasting global real GDP growth of 4.4% and 3.7% in Sub-Saharan Africa. Pent-up consumer demand should fuel spending and support trade.

South Africa’s economic rebound is expected to continue, albeit at a slower rate (SBG Research forecasts 2022 real GDP growth to be 2.0%). Persistent idiosyncratic risks remain, particularly electricity disruptions and high levels of unemployment. If structural reforms were accelerated, it could boost confidence, investment and drive faster growth.

Geopolitical tensions, particularly the developments in Ukraine, present risks to this outlook. The situation in Russia and Ukraine is complex and constantly evolving. The group is actively monitoring these events in order to comply with all relevant local and international laws and guidelines. Whilst the group has limited direct exposure to Russia and Ukraine through its controlled operations, due consideration will be given to the potential secondary impacts across the group’s countries of operation, for example financial markets, trade, transport logistics, commodity and food prices.

ICBCS, as an emerging markets and commodities business, has exposure to certain entities which are being impacted, directly and indirectly, by the developments in Ukraine and Russia. ICBCS is responding to developments in line with its contingency plans. At this stage, given the uncertainties and fluid nature of the developments, it is not possible for ICBCS to assess the impact on its 2022 result.

In 2022, the group expects higher average interest rates to support margins, which, together with higher average balance sheets, will support net interest income growth. Non-interest revenue will continue to grow as the group’s larger client franchise and higher activity-related fees offset potentially lower trading revenues. There will remain a continued focus on costs, in line with the group’s “save to invest” principle, with the objective of delivering positive jaws. CIB’s credit impairment charges are expected to normalise. BCC’s credit loss ratio is expected to move down into its through-the-cycle range. The group’s credit loss ratio is expected to remain at the lower end of the group’s through-the-cycle range of 70 to 100 basis points. Deliberate resource allocation to higher ROE businesses, and further capital optimisation, will support a further recovery in group ROE.

Mr Tshabalala says: “The risks we face as a business are varied and complex, including climate risk. After extensive consultation internally and externally, we have a board-approved climate policy which will be published shortly. The policy includes short, medium and long-term targets and is aligned to our commitment to net zero by 2050. We recognise Africa’s social, economic and environmental development challenges and the need for a just transition and are purposeful in delivering a positive impact.

Together, Liberty and Standard Bank, represent a formidable competitor on the continent, with over 1.4 trillion in AUM and R73 billion in gross written premium across our short and long-term businesses. In 2022, our focus will be on integration. We have a plan and will be executing against it with urgency.

We are sincerely grateful to everyone across the Standard Bank Group, including our colleagues at Liberty, who have continued to serve our clients with excellence in challenging circumstances. We have come through this crisis stronger, more resilient, more agile, and more competitive than ever.

2022 has started with strong business momentum. We are confident we are on track to deliver against the 2025 targets laid out at our Strategic Update in August 2021”, concludes Tshabalala.

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We have watched with interest as each of the country’s large life insurers report their 2021 life claims statistics, with soaring claims and claims values. That got us thinking: how do the big life insurers compare against one another, from an IFA perspective?

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