Standard Bank’s decision to change its strategic focus to Africa is being rewarded as the continent continues to deliver sustained growth in a lacklustre global economy. Despite short-term headwinds, the continent is, today, at a pivotal point in its history with sustained domestic growth set to transform Africa’s ability to manage risk and build long-term prosperity.
Recent results showed that Standard Bank Group continued to reap the benefits of growth in its sub-Saharan Africa businesses with the bank’s operations (ex-SA) now contributing 31 per cent to the group’s total income, and 25 per cent to headline earnings. Even in South Africa, with domestic growth hovering around zero, six-year-high interest rates saw loan profits return a 14 per cent increase in earnings in an economy set to return to growth.
Despite global and regional headwinds fanned by Brexit insecurities, low commodity prices, and poor growth in the world’s most developed markets, global multinational companies are continuing to invest in Africa. African multinational companies were also expanding beyond their borders.
In East Africa, for example, Standard Bank returned a 23 per cent increase in headline earnings compared with the first half of 2015. This was driven by East Africa’s more diversified economies sustaining growth rates in the region of 4 per cent.
In South and Central Africa, hard hit by drought, Standard Bank nevertheless returned a 6 per cent increase in headline earnings compared with the first half of last year.
Recent positive secular trends in South Africa, including; labour, government and business convergence, a dramatic reduction in work hours lost to strikes, energy supply stability, vigorous institutional strength, and an improved currency environment hold the potential for the economy to return to growth in the medium term.
In addition to identifying and driving growth, Standard Bank Group’s diversified African portfolio has been particularly successful in managing the volatility experienced by the continents commodity-dependent economies.
While Standard Bank’s West African earnings were negatively impacted by the regions structural over-reliance on oil revenue, the bank’s 20-year presence and deep knowledge of the region has equipped it to adopt a through-the-cycle view of growth. This is especially so for West Africa’s largest economy, Nigeria. With a large and young population, a growing middle class, rapid improvements in health, education and infrastructure, Nigeria’s demographic dividend is set to sustain growth for generations to come. Nigeria remained an exciting lynchpin in the bank’s overall Africa strategy.
Standard Bank’s recent acquisition of a banking licence for Cote d’Ivoire supports the banks longer term positive view of West Africa’s growth potential.
The financialisation of sub-Saharan Africa is being driven by the needs of the continent’s growing middle class to access the formal banking sector. This has made financial services one of the region’s most attractive sectors for investment. Significant in this is the increasing attention enjoyed by the continent’s pensions and insurance industries – driven by investors and regulators seeking to encourage savings and build funding pools.
Standard Bank Corporate & Investment Banking (CIB) continued to deliver robust growth in a volatile market, achieving overall earnings growth of 13 per cent – with an improved return on investment of 18.2 per cent. Significant progress is being made on the bank’s Business Online and signature e-Market Trader platforms, equipping clients to do the right business in the right way to realise opportunity while managing risk.
Realising steady and consistent growth in uncertain times is attributed to Standard Bank’s broad African footprint and full suite of services within all of sub-Saharan Africa’s regions. CIB’s diversified portfolio across the continent exactly matches the spread of growth opportunities in this regard.
For example, consumer-led growth in East Africa is returning CIB earning growth figures north of 20 per cent. Despite macro pressures in key South & Central African markets, good growth across the region has increased CIB earnings 19 per cent. South Africa continues to return stable growth of 17 per cent for Standard Bank’s CIB division despite domestic market constraints. Even in macro-challenged and liquidity constrained West Africa, CIB delivered 9 per cent earnings growth.
As Africans begin to save more, the long-term savings products created by insurance companies and pension firms will deepen domestic capital markets, paving the way for more corporates to issue debt on local exchanges, driving domestic growth.
Significantly, for the first time, Personal and Business Banking (PPB) now accounts for greater Standard Bank revenue in Africa (ex-South Africa) than CIB. This attests to vibrant commercial activity on the ground in Africa, despite a slower global landscape. It also reflects Standard Bank’s depth and presence on the continent. Leveraging growth through relevant personal and business transactional services, keeps Standard Bank’s business alive to opportunity – even as others seek to de-risk from the continent.
PBB headline earnings showed a 14 per cent improvement compared with the first quarter of 2015. PBB results were driven by strong revenue growth, especially in Africa (ex-South Africa) with eight out of 15 countries returning headline earnings growth in excess of 20 per cent. Despite South Africa’s higher interest and inflation rates, PBB’s South African performance registered a 10 per cent growth in headline earnings off a high base.
Standard Bank Group is committed to delivering through-the-cycle earnings growth and return on equity within a target range of 15 per cent – 18 per cent 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.
Standard Bank Group 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.
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 as we continue to drive Africa’s growth though investment in our franchise, products and people.
• Sim Tshabalala is Standard Bank Group Chief Executive