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13 August 2003
- Headline earnings 22% up
- Headline earnings per share 22% higher
- Cost-to-income ratio improved to 54,9%
- Return on equity 22,5%
Standard Bank Group continued its positive growth trend, with headline earnings increasing by 22% to R2 942 million for the six months to 30 June 2003 and headline earnings per share growing by 22% to 221 cents a share. In accordance with South African accounting standards, the group is required to adopt the new accounting statement on financial instruments, AC 133, with effect from 1 January 2003. Excluding the effects of AC 133, headline earnings would have increased by 19,5%. At this interim stage, the increase in headline earnings has exceeded the group's stated medium-term growth objective of inflation (CPIX) plus 10%.
Says Jacko Maree, Standard Bank Group Chief Executive: "This favourable result was achieved despite the adverse effect of the stronger rand on consolidated earnings from the group's international and African operations, and the negative impact of depressed equity markets on Liberty."
Return on equity for the group improved to 22,5% from 18,7% and exceeded the group's medium-term objective of 20%. An interim dividend of 41,5 cents per share was declared, 22% higher than the prior year.
Net interest income growth of 24% resulted mainly from improved retail interest margins following an increase in the average prime rate and the higher retail deposit base. Continued growth in home loans, instalment finance and card debtors contributed strongly to this growth.
Non-interest revenue continues to contribute more than half of the group's revenue and increased by 13%, with the growth evenly spread over fee & commission income and trading income.
Non-performing loans continued their positive trend and reduced from 2,7% of loans and advances at December 2002 to 2,5%, reflecting the improved quality of the underlying books. The provision for credit losses increased by 7% and as a ratio to loans and advances increased from 1,11% to 1,19%, mainly as a result of AC 133, which requires recoverable amounts to be present valued, hence decreasing security values and increasing provisions.
Operating expenses increased by 13% and staff costs were 15% higher. The group has continued to invest in its domestic sales and service capability and IT infrastructure, and opened investment banks in Moscow and Sao Paulo. Due to good revenue growth, the cost-to-income ratio improved from 57,5% to 54,9%. Excluding the AC 133 , the June 2003 cost-to-income ratio was 56,4%.
Says Maree: "The group's domestic banking operations had a successful six months as the bank generally benefited from wider margins, together with a targeted increase in both retail and wholesale higher margin lending products.
"The group's international operations achieved strong earnings growth following a recovery in the markets in which they operate. Healthy growth was achieved in local currency terms in Stanbic Africa, but this was dampened in the group results by the stronger rand exchange rate."
Key to the performance of banking operations across the group was the continued improvement in credit risk management, which assisted the containment of the credit loss charge despite additional provisions required under AC 133.
Banking assets increased by R105 billion to R433 billion. This growth is, however, inflated by a R89 billion increase in both assets and liabilities to give effect to a gross-up of derivative positions, in line with the change in accounting policy from 1 January this year. Loans and advances were 14% higher than at June 2002, following strong growth in mortgage loans, instalment finance and credit card balances.
The group's capital adequacy ratio increased to 14,5% from 14,3% at December 2002, well above the minimum regulatory requirements. The group's and Standard Bank of South Africa's primary capital ratios were 10,9% and 7,8% respectively.
Says Maree: "Declining interest rates, lower inflation and a strong currency are all signs of a healthy South African economy, but these indicators are likely to have mixed effects on the group and on its domestic customers. In the light of these factors, particularly an expected tightening in domestic margins, we do not anticipate that similar growth in earnings to that recorded in the first half is achievable for the full year. Accordingly the group's target for earnings growth for the full 2003-year remains the group's stated medium-term growth objective of inflation (CPIX) plus 10 percentage points."
Maree did however caution that AC 133 is likely to introduce more volatility into future reported earnings.
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