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Not a bad set of numbers

19 August 2004 Angelo Coppola

"This result was achieved despite the adverse affect of the stronger rand on the translation of earnings from the group's foreign operations and the negative impact of reduced net interest margins in the group's domestic banking operations," says Jacko Ma

  • Headline earnings 14.6% up
  • Headline earnings per share 13.7% higher
  • Return on equity 23%
  • Interest income down 11%
  • Total income up 8%

“Last years numbers did reflect some AC133 adjustments, so the eps growth this year is slightly lower.”

“The margin squeeze aside, this is a good time to be in the retail banking sector. Although there is a disconnect as there is subdued lending growth in the corporate sector – this is a consumer led growth cycle.”

This has also led to a buoyant residential property market boom. There is no bubble as this is a national effect. The growth on the retail side is evident, in the loans and advances area:

  • Home loans were up 38%
  • Vehicle and asset finance up 26%
  • Cards up 31%

On the retail side, and in terms of IT expenditure Maree said: “You can’t let the network deteriorate, and there are a range of ways that are being explored to meet the group’s Charter obligations.

"Investment in IT will continue a pace and perhaps pick up slightly, while the going is good.

“While we are not driven by market share, and we don’t set ourselves goals: home loans increase up; retail home loans up; total installment finance up; retail installment finance down; credit card up; retail unsecured lending up; retail branch deposits up.

The one area that wasn’t in the 20% region was retail installment finance.

A highlight of the period was a greater than anticipated reduction in credit losses across the group.

Loans and advances were 17% higher with strong domestic loan growth of 24%, while Africa reported a growth of 21% in rand terms.

Mortgage loan balances increased by 35%, while vehicle and asset finance loan balances grew by 26% and card debtors increased by 31%. The group's market share increased in all three of these product categories.

The home loan originators seem to be taking market share from the estate agents and the mobile sales force, climbing from 30% to 40%. This could become an issue in time. 

Peter Wharton-Hood: "We have found that there has been consolidation within the estate agents wanting to get into the originators business.

"So where will this lead? There is increased competition, and the margins have been squeezed. Costs in the mortgage business – Mortgage SA costs pegged for the next six years.

Credit provisioning is still going/coming down. Credit losses are still lower and this remains a window of opportunity, while non-performing loans have come down 13%.

Corporate and investment banking provisioning was a huge 88% lower, as there were lower defaults, although we are watching the mining sector.

The group's provision for credit losses as a percentage of average loans and advances reduced from 1.17% to 0.72%. "This was surprising to us."

Non-performing loans as a percentage of gross loans and advances continued to reduce from 2.29% in June 2003 to 2.15% in December 2003 and 1.77% in June 2004.

Domestic banking operations produced strong overall earnings growth of 22%, with retail banking operations up 26% and corporate and investment banking up 13%.

Earnings in Africa grew by 19% and the group's international operations produced earnings of USD56 million, 10% down on the prior period's high base and 26% lower when translated into rand.

Healthy asset growth in all domestic retail lending categories helped offset the domestic margin reduction.

Within non-interest revenue, fee and commission income grew by 19%. Domestic banking was the main contributor to this growth, with its fee income up by 17%.

Increased transaction volumes, a growing customer base and an increase in advisory fees from corporate clients all contributed to this increase. The group's ratio of non-interest revenue to total revenue increased from 51% to 57%.

Transactions increased generally with internet transactions up 33%, bancassurance up 26%; card turnover up 24%; teller transactions up 9%; and ATM transactions up 8%.

The group's capital adequacy ratio increased to 15.4% from 14.9% in December 2003. Capital adequacy is still strong, this mostly driven by the growth in risk-weighted assets, and by effectively managing the assets on the book. This can’t be sustained indefinitely, however.

An interim dividend of 50.5 cents per share was declared, 22% higher than the previous year.

The group's recently announced black ownership initiative, if approved by shareholders, is expected to have a minimal impact on the group's 2004 earnings per share, as it will only be effective from October 2004.

Maree announced that the scheme meeting has been scheduled for 13 September. He confirmed that certain issues were addressed before the judge on 17.8.04 and he was comfortable with the arguments and approved the scheme meeting date.

Standard Bank's principal financial objectives for 2004 remain unchanged at a return on equity in excess of 20% and headline earnings growth of inflation (CPIX) plus 10 percentage points.

Quick Polls

QUESTION

Healthcare brokers have long complained about inflation-plus medical scheme contribution increases; but pandemic may have changed things. What will pandemic-induced changes in hospital utilisation do to medical scheme contribution increase patterns?

ANSWER

Below inflation increase for 2022, then back to inflation-plus
Long-term trend of below inflation increases
Inflation-linked hikes for 2022, then back to inflation-plus
This is a 2-year hiccup, inflation-plus increase trend remains in place
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