|  |  | Retail Banking |  | | |
Retail Banking increased its segment focus leading to improved customer acquisition. Significant asset growth led to market share improvements in the majority of products. Investment in our distribution network continued.
Financial highlights
- Headline earnings up 28%.
- Financial performance continued to be boosted by better-than-expected growth in advances; strong customer acquisition; improved customer retention; and lower credit loss ratios.
- Net interest income was impacted by a compression of margins due to lower interest rates; an increased reliance on more costly wholesale funding; offset to some extent by the good growth in advances.
- Credit losses decreased as a result of lower loss ratios experienced combined with lower probability of future defaults as a result of the favourable interest rate environment; and improved collection strategies.
- Non-interest revenue improved as a result of strong fee income growth following increased transaction volumes; and increased bancassurance business and lower loss ratios in the short-term insurance business.
- Costs increased due to an increase in processing expenses in line with increased transaction volumes and new legislation; additional IT spend on hardware maintenance and ATMs; and higher incentive payments to staff.
|
How we did
| |
2004 |
2003 |
| Headline earnings (Rm) |
3 158 |
2 476 |
| ROE (%) |
36,8 |
35,2 |
| Cost-to-income ratio (%) |
61,3 |
60,9 |
| Credit loss ratio (%) |
0,59 |
1,10 |
| Net advances (Rm) |
151 354 |
112 751 |
| Headline earnings contribution (%) |
41 |
39 |
|
What we achieved in 2004
Retail Banking increased its segment focus leading to improved customer acquisition, particularly in segments where we were not well represented. More focus was also placed on the unbanked market. The high asset growth led to market share improvements in most products. Retail Banking continued to invest in the distribution network, both physical and electronic.
Home loans
The home loans business not only benefited from favourable economic conditions, which saw house prices increase by 32%, but also from improved marketing and sales efforts, enabling Standard Bank to grow its share of new business. The number of mortgage registrations rose by 37%. Internal origination channels accounted for 38% of new business and good relationships with home-loan originators and estate agents continued. Home loans has a comparatively young book, with 39% of the book being written in 2004, resulting in a relatively low "fall-off" of the book compared with our competitors. All of these factors contributed to a gain in market share.
Customer retention strategies and operational processing were two major focus areas in 2004. Sixty-six percent of new loan applications are now turned around in seven days, a marked improvement on the 51% reported at the beginning of 2003.
The average size of a home loan written in 2004 was R350 000. The average loan-to-value ratio of the home loan book is 69% and the average instalment-to-income ratio is approximately 20%.
Vehicle and asset finance
The vehicle and asset finance business performed well and achieved a 31% growth in the number of new deals against a 22% growth in industry sales of new vehicles. Growth in the non-motor book was below expectation and is receiving attention. The vehicle and asset finance sales force is the only Standard Bank sales team that is not integrated into the branch network. This status is set to change in 2005 and should, in time, provide opportunities to increase growth and improve customer interaction with the bank.
Card
The card business continued to receive strong support from the branch network and turnover increased by 25%. The number of credit card transactions rose by 15%. For stores with Standard Bank card terminals, credit card sales increased by 17% and the number of transactions increased by 16%. The card business has upgraded its information technology platform to improve transactability and information management.
Other lending
The 17% balance growth in overdrafts, revolving credits and medium-term loans was due to an increase in new customers, a higher demand for credit, an increased penetration of our existing customer base and general process improvements. Non-performing loan ratios continued to decline as a result of improved credit processes and a favourable credit environment.
Transaction and savings
The transactional business achieved strong year-on-year growth of 12% in the number of personal and business current accounts. Transactional volumes on current accounts rose by 8%. The number of EPlan accounts increased by 12%, to 3,1 million active accounts. EPlan is a simple transactions-based account aimed at the convenience banking market. The number of Maestro users increased by 43%, with volumes increasing by 80%. Maestro is a simple card-based payment system that allows customers to make electronic payments directly from their accounts to retailers. Standard Bank now accounts for more Maestro transactions than the rest of the South African banking sector combined. The Standard Bank cheque card achieved a 66% growth in the number of cards and the number of transactions increased by 180%.
Together with the growth in savings and investment deposit accounts, market share gains of approximately 1% were achieved in retail deposits.
Key product analysis
|
Balance
2004 Rbn |
Balance
growth (%) |
Balance
2003 Rbn |
| Assets |
|
|
| Home loans |
92 |
43 |
64 |
| Vehicle and asset finance |
34 |
21 |
28 |
| Other lending |
20 |
18 |
17 |
| Credit card |
8 |
35 |
6 |
| Liabilities |
|
|
| Current accounts |
27 |
17 |
23 |
| Investment deposits |
33 |
6 |
31 |
| Savings |
15 |
7 |
14 |
| EPlan |
5 |
25 |
4 |
|
Credit
Credit performance improved across all products and was assisted by an improved environment in South Africa. Retail credit has continued its strong focus on maintaining credit quality by:
- enhancing credit scorecards and data inputs by improving the quality and scope of underlying data sources which results in an improvement in predictive capability;
- improving collections operations and capability through an improvement in early identification and rehabilitation of delinquent accounts processes, a focus on risk-based collections and an elevated focus on after-write-off recoveries; and
- investing in automated decision support technologies, including a new collections system to facilitate collections at an enterprise level.
Operations and infrastructure
Increases in account and transactional volumes, as well as the impact of compliance with two new acts in South Africa – the Financial Advisory and Intermediary Services (FAIS) Act and the anti-money laundering Financial Intelligence Centre Act (FICA), presented some challenges during the year. Despite these demands, customer satisfaction ratings were maintained. The CUSSATS survey performed by an independent research company rated Standard Bank first in customer satisfaction ratings in South Africa. The Customer Evaluation of Branch Service (CEBS) score, performed by an independent third party, confirmed that our service ratings were maintained during the year.
Retail Banking achieved its sales targets in all major product areas. A positive attitude and high energy levels continued to permeate through the bank’s branch network.
Direct distribution channels were bolstered through the installation of 192 new ATMs. A 9% increase in ATM-based transactions was recorded. Call volumes to the bank’s customer contact centre increased by 15% and new Internet banking registrations rose by 24%. The volume of Internetbased transactions increased by 45%.
Cash transaction volumes were up 7% to slightly more than R20 billion of deposits and withdrawals processed monthly. Security around cash in transit was increased and an increasing proportion of our cash-in-transit activity was outsourced to SBV, a specialist banking industry service provider. An industry model has been developed for clearing cash to and from retailers in shopping centres. In line with an expected decline in paper-based transations, cheque volumes declined by 13% to just over 4 million cheques per month. Cheque-processing infrastructure has been successfully rationalised, including a reduction in headcount of 18%. Approval has been received from the Competitions Commission to develop a shared cheque-processing infrastructure with ABSA. The first phase of the proposed model has been piloted and proved viable.
During the year, 19 “Bank in a Box” units were installed. This distribution mechanism is a cost effective, quick deployment, relocatable, prefabricated point of representation. It uses modern, broadband satellite technology for communication. This makes it effective for testing new markets, especially in areas with limited infrastructure like urban townships and deep rural districts where banking services are not readily available.
|
2004 |
2003 |
| ATMs |
3 289 |
3 097 |
| Total points of representation |
741 |
708 |
| Branches |
171 |
167 |
| Service centres |
414 |
397 |
| Bank in a Box |
19 |
- |
| AutoBank E |
137 |
144 |
|
Charter product initiatives
Retail Banking initiatives linked to the charter all made encouraging progress. Since launching the low-cost Mzansi banking account in October, Standard Bank had opened approximately 90 000 new Mzansi BlueAccounts with combined balances of R26 million by year end.
The Standard Bank Mzansi BlueAccount is in line with the banking industry’s cooperative initiative to bring affordable banking to South Africa’s unbanked individuals. Mzansi BlueAccount is a simple, affordable transmission account. The pricing of the account is based on what an unbanked customer will find affordable, and operates on a pay-pertransaction basis. The account carries no monthly fee and offers one free deposit and one free balance enquiry a month. Debit order facilities are not offered on the account. Interest is earned on the account at a rate which depends on the balance in the account.
One of the account’s main benefits is that customers can use other banks’ ATMs at no extra fee. Previously unbanked people account for more than 93% of the total Mzansi accounts.
Retail Banking also established a specialist low-income housing business unit to focus on the home-ownership requirements of households earning between R1 500 and R7 500 a month. This new initiative is aimed at providing qualifying households with mortgage loans, pension-backed loans and unsecured housing finance. It will also focus on providing development finance for rental and private ownership, as well as wholesale funding to small and medium enterprises in the low-income market.
Joint ventures and alliances
The Standard Bank collaboration agreement with Barclaycard is working well and the account base doubled in 2004. The African Bank Investments Limited (ABIL) business continues to gain ground and the outstanding loan book was R568 million at year end (2003: R380 million). On the securitisation front, the SA Home Loans relationship is working well in terms of both profitability and the origination of new business.
Wealth management in South Africa
What we achieved in 2004
Bancassurance commission from simple embedded assurance products increased by 37%. The complex intermediary business improved, with first-year commission income increasing by 19% (2003: 1%), assisted by the improved performance in equity markets. The transition to FAIS-compliance has been completed.
Embedded
products |
Commission
received |
Number of
policies |
Penetration |
| Funeral |
+40% |
+24% |
22% (2003: 19%) |
| Home loan |
+42% |
+23% |
17% (2003: 15%) |
| Personal loan |
+50% |
+24% |
62% (2003: 54%) |
In the short-term underwriting business, policy volumes grew 15% and the overall loss ratio improved to 51% (2003: 56%).
Focus areas for 2005
In the year ahead, Retail Banking will focus on:
- improving its segment focus in order to further expand the customer base and market share by understanding the life-cycle of a customer and providing relevant products;
- renovating and expanding infrastructure;
- meeting the commitments of the charter: understanding the growth potential of low-income housing and black SMEs;
- renewing the vehicle and asset finance focus on the non-motor sector, and better integrating this business into the branch network;
- growing the retail deposit base; and
- closely monitoring compliance with established and new legislation.
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