Standard Bank Group gained the most in more than a week after first-half profit from continuing operations at Africa’s largest lender by assets climbed, boosted by higher interest rates in its home market that boosted income, and as fees from the rest of the continent increased.
The stock led advances among the biggest lenders on the six-member FTSE/JSE Africa Banks Index, rising 5.5% to R150.47 by 1;03pm in Johannesburg on Thursday. Earnings from continuing operations before one-time items increased to R10.9 billion ($820 million) from R10.2 billion a year earlier, Standard Bank said in a statement. The dividend rose 12% to R3.40.
The company achieved “excellent top line growth” as lending margins widened, said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town. Trading income was “strong,” while the dividend increase was “pleasing,” he said.
Standard Bank’s South African business overcame an economy that contracted in the first quarter as interest rates at their highest levels in six years lifted the profit it makes from charges on loans. Income growth from the company’s 19 units in the rest of the continent accelerated from a year earlier, boosted by gains at its credit-card unit and corporate and investment banking that offset losses in its fledgling vehicle and asset finance division.
Net income in the six months through June declined to R10.8 billion from R13.2 billion a year earlier after the company recorded one-time gains of R2.8 billion in 2015, mainly related to the sale of a stake in its UK.business, that weren’t repeated.
South Africa’s economy is forecast not to expand at all this year as the central bank grapples with having to bring inflation back below it’s target range. This has put pressure on consumers and caused credit-impairment charges at Standard Bank to increase 16% in the first half.
Return on equity dropped to 14.4% from 15.1%. as challenges started mounting from the rest of sub-Saharan Africa, where the International Monetary Fund forecasts growth will slow to 3% in 2016. In Nigeria, where Standard Bank is one of the biggest lenders, the devaluation of the naira and the decline in oil prices have pushed the economy to the brink of a recession.
“Concerns relate to credit losses in the corporate and investment banking division, particularly in West Africa where conditions are tough,” said Neelash Hansjee, a banks analyst at Old Mutual’s investment-management unit. “Personal and business banking credit losses seemed relatively well contained.”
While Standard Bank has increased provisions to guard against any deterioration in loan quality with South African consumers coming under more pressure, retail bad debts may start to rise in the fourth quarter of 2016, or first quarter of next year, Ben Kruger, co-chief executive officer of Standard Bank, said by phone. Increases in food inflation and a rise in the price of gasoline may hurt consumers, he said.
“We are cognisant of the constraints under which our customers are currently operating,” the lender said. “Despite increasing our credit provisions to reflect this, the group remains well capitalised and in a position to continue to invest and grow. We are committed to delivering through-the-cycle earnings growth and return on equity within our target range of 15% to 18% over the medium term.”
© 2016 Bloomberg