JOHANNESBURG – Standard Bank Group’s full year results to December brought to an end a five-year “journey of transformation” for the bank, from aspiring to be a leading emerging markets bank to realigning its strategy with Africa at the core of its business, said joint chief executive, Ben Kruger on Thursday.
The cash disposal of a 60% interest in Standard Bank Plc – the bank’s London-based global markets business – to the Industrial and Commercial Bank of China (ICBC), meant the bank could reposition its capital to focus on customers and clients in Africa, Kruger said.
The sale, completed in February, earned Standard Bank $690 million (R8.1 billion), about 10% less than initially anticipated. As part of the deal, ICBC has a five-year option to purchase a further 20% of the outstanding ordinary shares of Standard Bank Plc.
For the year to December 2014, headline earnings for Standard Bank’s corporate and investment banking (CIB) division fell 23% as a result of a R3.7 billion loss in Standard Bank Plc, regarded as a discontinued operation for IFRS purposes.
This was chiefly a function of a $147 million valuation adjustment relating to metals fraud in China’s Qingdao port, where multiple financings of single inventories of metal created a $167 million aluminium exposure for Standard Bank’s global markets business.
“We were victims of an isolated and sophisticated crime. We are extremely disappointed by this incident and by the money that appears to have been lost, but we have learnt a lot from the incident and have applied these lessons to other part of our business,” commented David Munro, chief executive of CIB, speaking at the group’s results presentation in Johannesburg.
He said Standard Bank is addressing the matter in Chinese courts and has completed and submitted a comprehensive insurance claim. “Over 20 banks and trading houses are believed to have been impacted by the fraud,” Munro said.
The sale transaction to ICBC closed a chapter for the global markets business outside Africa, Munro said.
Excluding Standard Bank Plc, CIB reported a 26% climb in headline earnings from continuing operations to R8.7 billion.
Munro said CIB will focus on Africa – “what we do best” – while maintaining its connectivity to the rest of the world. “Africa remains at our core. We call Africa home in a way that no other bank can, due to our unrivalled footprint on the continent.”
Vehicle finance takes strain
In personal and business banking (PBB), Standard Bank’s vehicle and asset finance division came under pressure in South Africa, with headline earnings falling 50% to R165 million. This is better than its position at the half-year, when it reported a R29 million loss, due to adverse credit selection in 2013.
Chief executive of PBB, Peter Schlebusch, said Standard Bank is working on turning the division around. “We believe there is lots of opportunity if we can continue to improve that and fix our franchise,” Schlebusch said.
Headline earnings from lending products almost doubled to R1.2 billion, following a significant narrowing in losses from Standard Bank’s ‘inclusive banking’ (unsecured lending) business. Impairment charges for personal unsecured lending fell 10%.
Schlebusch said PBB’s rest of Africa operations were the “star of the show”, achieving a R105 million profit from a R366 million loss in the prior year, with Zambia, Mozambique and Kenya showing profits for the first time.
According to Kruger, investments into IT will position Standard Bank as a “fundamentally different bank, ready to take on future challenges brought about by the digital era”.
Schlebusch said 750 000 customers are using Standard Bank’s mobile app, with R5 billion worth of payments transacted in 2014.
‘Africa is our home, we drive her growth’
“Having closed the [ICBC] transaction, we now stand on the threshold of a new era in Standard Bank,” added joint CEO, Sim Tshabalala in his concluding remarks, highlighting that the bank is now able to deploy resources and human capital fully and completely on the African continent.
“We are absolutely determined to make real the proposition that Africa is our home and we drive her growth,” Tshabalala emphasised, pointing to the 41% growth in headline earnings from rest of Africa operations last year to R4.9 billion. This accounts for 28% of group headline earnings.
For the year to December, Standard Bank’s headline earnings grew 1% to R17.3 billion. Headline earnings from continuing operations were up 20% to R21 billion. Net interest income, money earned from lending, was up 15% to R45.25 billion. Non-interest revenue, or earnings from fees and commissions, climbed 14% to R38.98 billion.