Standard Bank, Africa’s largest bank by assets, reported in its results for the six months to 30 June 2022 that its headline earnings were up 33% to R15.3-billion and shareholders would receive an interim dividend of 515c a share or R5,150 for 1,000 shares. This equates to a dividend payout ratio of 55% for the current period.

The bank saw some reputational risk earlier this year when it suffered repeated outages or downtime. 

Margaret Nienaber, chief operating officer at Standard Bank, says the bank has spent significant amounts of money on improving its resources. This has resulted in a 25% reduction in significant outages and a 19% reduction in recovery time.

“We are focusing on a back-to-basics strategy and there are five particular things we have zoned in on,” she says.

Standard Bank says its five focus areas are:

1. The right levels of discipline in teams and improving root cause analyses — taking time to understand what has happened and why.
2. A twofold approach that focuses on prevention and improved recovery times if and when systems crash.
3. Finding a balance between legacy systems and future-ready systems. This includes retaining skills to maintain legacy systems and taking on skills to build future-ready systems.
4. Communication systems being tested regularly to ensure that customers are kept updated efficiently and appropriately.
5. The right environment to attract and retain top talent.

Standard Bank spent R5.1-billion on IT in the first half of 2022, up 7% from R4.8-billion in the first half of last year. This expenditure has largely been on:

• Continued cloud migration to enhance business agility and system resilience as signature IT programmes wind down; and
• Software to enable employees to service clients better, enhance infrastructure resilience, improve client relationship management platforms and improve digital capabilities. 

“One of the things we’ve done is to appoint a group chief information officer, Jörg Fischer, [who has] deep experience in technology,” Nienaber says. “We are not on a road to make everything cloud-based as there will always be a legacy component to banking and we must have strength in that regard.”

Fischer has been with Standard Bank for more than 25 years, having started as a financial manager in 1997.

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Progress towards 2025 targets

Standard Bank CEO Sim Tshabalala says the bank has made good strategic and financial progress towards its 2025 commitments. One of its financial targets is revenue growth of 7% to 9% a year, with revenue from new business models growing more quickly than those from insurance, banking and investment. 

“We have exceeded internal expectations in terms of revenue growth, delivered strong positive jaws, retained the credit loss ratio within the group’s through-the-cycle range, and return on equity [ROE] moved closer to the 2025 target range of 17% to 20%,” Tshabalala says.

ROE for the six months to June was 15.3%, inching closer to the 2025 target of 17 to 20%. 

Jaws or the jaws ratio in the context of banking results refers to income and operating expenses growth trends. Wider or more positive jaws indicate increased efficiency. In the case of Standard Bank, revenue growth exceeded cost growth, resulting in positive jaws of 450 basis points.

Preprovision operating profit, driven by strong revenue growth, grew by 20%. Net fees grew 10%, supported by a larger client base and increased activity. 

In South Africa alone, headline earnings increased by 30% and ROE improved to 14.2%. Revenue saw double digit growth, boosted by a strong trading performance (up 41%) and an ongoing recovery in activity-related fees (up 10%). Customer numbers grew by 8%, moving to 10.5 million.

Looking ahead, the bank expects further monetary tightening in South Africa to negatively impact confidence and demand, constraining real GDP growth to 2.3% in 2022. Electricity supply issues could also restrict growth. Standard Bank expects inflation to peak in the second half of this year, averaging 6.5% for the year.

About 50% of Standard Bank’s business and commercial clients are now using the bank’s digital channels. The high-net-worth consumer category has seen an 18% growth in platform customers and a 25% increase in digital transactions to more than 240 million.

Tshabalala says for the 12 months to the end of December 2022, net interest income is expected to grow by low double digits year on year, supported by balance sheet growth and endowment tailwinds.

“As the pandemic unwind fades, non-interest revenue growth is expected to moderate to high single digits. Standard Bank will continue to manage its costs judiciously, with a focus on delivering below-inflation cost growth and positive jaws. 

“The group credit loss ratio is expected to remain in the lower half of the through-the-cycle target range of 70 to 100 basis points, subject to macroeconomic developments,” he says. BM/DM