Business Day (Johannesburg)

South Africa: Standard Profit Falls as Borrowers Battle

Johannesburg — STANDARD Bank Group said yesterday its profit for the year to December fell 20% in line with market expectations as customers struggled to repay loans in the economic slump.

Attributable profit fell to R11,1bn from R13,9bn a year earlier. Headline earnings, excluding accounting adjustments and one-off items, fell 17% to R11,7bn.

CEO Jacko Maree said: "It was an extremely tough year, but one in which our focus on developing markets stood us in good stead. As the recession took its toll, demand for credit in both corporate and retail sectors fell."

Three bank analysts polled by Business Day said the key factor for Standard Bank and all of SA's banks this year would be the extent of the expected decline in impairments. One was concerned that heavily indebted individuals were taking much longer than expected to reduce debt.

They agreed that Standard's diversification strategy was paying off. "This is the only bank in SA that has a big growth vector that will kick in in the next few years," one analyst said.

"The cherry on the top will be how much their African operations bring to the table."

The analysts were pleased the dividend was maintained. One said it indicated to him that the bank's management was confident of a rebound.

Maree said he expected normalised headline earnings would recover from the 2009 base. Management's immediate focus would be on restoring earnings to 2008 levels. Regulatory changes in the wake of global financial crisis might affect returns over the longer term.

Standard Bank, 20% owned by the world's largest bank, the Industrial & Commercial Bank of China, grew faster than rivals FirstRand and Absa in the past two years as it benefited from operations in China, Africa, Russia and Latin America.

Headline earnings per share fell 20% to 757c. Dividends were held at the 2008 level of 386c per share. The credit loss ratio rose to 1,6% from 1,55% in 2008.

Credit impairment charges, after more than doubling in 2008 to R11,3bn, rose a further 7% last year to R12,1bn.

The credit loss ratio comprised a charge of 1,84% in the first half and 1,31% in the second, indicating improvements in credit experience that started towards the end of last year.

Headline earnings for the personal and business banking unit fell 19% to R3,8bn, corporate and investment banking's was down 6% to R7,5bn, and it fell 89% to R72m at life assurance subsidiary Liberty while the number from central and other business units was down 63% to R304m.

Personal and business banking's headline earnings reflected margin pressure due to lower interest rates and high credit impairments, offset by cost containment measures.

Mortgage lending advances rose 2%, but high impairments resulted in a net loss. Instalment and finance advances fell 17%, and card products posted an earnings rise on nonrecurrence of the previous year's high credit losses.

Corporate and investment banking experienced good growth in revenues, but absorbed significantly higher credit losses.

Liberty returned to profitability for the year after reporting a loss in the first half. Lower interest income on surplus capital affected central earnings.

Global markets business generated strong revenue from client trading. Investment banking had a tough year, with higher nonperforming loans in all regions.

Banking operations in SA were resilient, with headline earnings down only 9% on the prior year. Headline earnings from operations in the rest of Africa were affected by the stronger rand and a difficult operating environment in Nigeria.

Operations outside of Africa grew headline earnings 5% in US dollar terms, although they had absorbed a 45% increase in credit impairments.

STANDARD BANK GROUP

Full-year 2009 2008

Revenue (Rbn) 107 84,7

Pretax (Rbn) 17,4 21,4

Net profit (Rbn) 12,8 16,7

Headline EPS (c) 756,9 942,6

Dividend (c) 386 386

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