Standard Bank last week pledged to further slash costs after the largest banking group by market capitalisation acknowledged they could impede efforts to expand revenue in a subdued economic environment.
Group chief executive officer Mr Jacko Maree said at the release of the bank’s first-half results, to June, that the combination of an 11 percent growth in headline earnings to R7,4 billion, or 460,9c per share, and a 17 percent rise in costs by R2,84 billion, was “disappointing”.
Investors seemed to agree as they pushed the share price down to close 2,38 percent lower at R113,43.
Standard’s costs include dollar-based expenses converted into local currency and those to fund growth.
But analysts say the bank needs to get a firmer grip on how it manages expenses, while expanding revenue and further improving return on equity.
The group’s income rose 15 percent to R32,3 billion, boosted by an 18 percent rise in net interest income of R15,8 billion and a 13 percent rise in non-interest revenue of R16,5 billion.
Adrian Cloete, an equity analyst at Cadiz Asset Management, said although the results were “reasonable”, they were still “a bit below” the expectations of sell-side analysts, which could trigger a downgrade of the bank’s full-year earnings.
Mr Maree said dollar-based costs were still too high, given the subdued revenue outlook, particularly at operations outside Africa.
“We are going to be working incredibly hard to reduce the (dollar) cost base.”
The group would, however, continue to invest for growth via organic expansion rather than through acquisitions, and also gradually transfer capital at its UK subsidiary to fund growth in Africa, even though the process was proving to be complicated.
Group financial director Simon Ridley also said greater focus would be on managing dollar-based costs at its operations outside Africa.
Meanwhile, the bank’s core personal banking and business unit proved once again to be the main contributor to revenues when it reported a 33 percent increase in earnings to R3,2 billion in the six months to June.
The bank said overall headline earnings rose 11 percent to R7,4 billion and total income grew 15 percent, boosted by an 18 percent rise in net interest income and a 13 percent rise in non-interest revenue. But costs soared 17 percent, resulting in a higher cost-to-income ratio of 59,1 percent, from 58 percent in the comparative period last year.
The credit loss ratio worsened to 0,98 percent from 0,81 percent, while the interim dividend was increased to 212c per share from 141c in 2011.
Despite the personal and business banking unit’s higher earnings, the corporate and investment banking business disappointed with a 7 percent decline in earnings to R2,9 billion.
Group CEO Jacko Maree said the primary drivers of earnings were income growth in excess of cost increases and better pricing of new loans.
“The mortgage business continues to perform well, with revenues up 14 percent as a result of steady book growth over the past 18 months and a continued improvement in credit experience, particularly in
South Africa given the sustained low interest rate environment and an improvement in customers’ ability to service debt,” he said.
Mr Maree said non-performing loans reduced by a further R1 billion in the period from December 2011 (now 6,2 percent of the book), cutting the credit loss ratio to 91 basis points.
“The instalment sale and finance lease book grew 18 percent compared with the prior period, assisted by resilient vehicle sales in South Africa and good book growth in the rest of Africa,” said Mr Maree.
Standard Bank said its overall liquidity position remained strong, with buffers held for stress of R142,8 billion by June, excluding cash reserves of R42,1 billion, making its balance sheet one of the most robust among the big South African banks.
Mr Maree said the liquidity levels, though significant, were required to comply with tougher Basel 3 regulatory requirements, under which global banks have to beef up their liquidity and capital ratios.
“These levels of liquidity are significant but are required in anticipation of current and pending regulations as well as being appropriately prudent given the group’s liquidity stress-testing philosophy,” he said.
“The group continues to maintain a robust ratio of long-term funding at 25 percent of liabilities.” — Business Day.