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Standard Bank sees recovery amid difficulty

Earnings increase by more than 200% on higher activity levels and lower credit impairment charges.
Image: Moneyweb

That Standard Bank could announce that its profit recovered to R13.3 billion in the six months to June 2021, compared with only R4.1 billion in the first half of the previous financial year, is testimony that things are improving. Further proof is that a big portion of the recovery can be attributed to a sharp and welcome income in impairment charges.

Charges for bad debt declined from R11.3 billion in the same six months a year ago – when lockdowns prevented people from working and they couldn’t honour their commitments – to less than R6 billion.

Summary of interim results

Six months to June (Rm) 2021 2020 % change 12 months to Dec 2020
Revenue 64 815 61 517 5.4% 123 667
Net interest income 29 968 31 204 -4.0% 61 425
Non-interest revenue 24 485 24 580 -0.4% 47 156
Credit impairment charges 5 797 11 291 -49% 20 594
Earnings 13 321 4 122 223% 14 513
Headline EPS R 7.21 R 4.74 52% R 10.03
DPS R 3.60 0c -% R 2.40
Share price R 135.82
12-month high R 145.35
12-month low R 99.02
PE 10.9
DY 2.6%

Source: Standard Bank interim results and JSE market data

Standard Bank CEO Sim Tshabalala notes that the first six months of 2021 were still an exceptionally difficult period for many of the group’s clients, staff and stakeholders, but that everyone is hopeful that the worst phase of the pandemic is behind us.

Recovery

“Notwithstanding these continuing strains, some early signs of recovery are evident in Standard Bank’s financial results for the first half of 2021. Our underlying business has strong momentum and, relative to this time last year, we have seen a recovery in client activity, an improved outlook and lower impairment charges,” says Tshabalala.

Management mentions that the group’s SA business recorded a strong recovery, particularly in the consumer and high-net-worth client segment.

The wholesale client segment reported strong earnings growth on the back of net credit recoveries and tight cost control.

The recovery in client transactional activity, higher fee income and significantly lower credit charges negated the effects of lower interest rates during the period relative to a year ago. However, Tshabalala points out that credit impairment charges remained above normal levels (when comparing it with the first half of 2019).

Headline earnings recovered to R10.9 billion – an increase of 41% compared with the first six months of 2020. It resulted in a big recovery in return on equity,

In addition, Liberty returned to profitability and other interests continued to perform well.

Read: Liberty now hoping for a different kind of extraordinary

As a result, group headline earnings recovered to R11.5 billion, an increase of 52% compared with the first six months of the previous year. This led to a big recovery in return on equity which improved to 12.9% after falling to 8.5% during the extremely difficult comparable period.

The good results paved the way for the declaration of an interim dividend, and quite a decent one as well.

The group paid out half its earnings with the R3.60 interim covered just about twice by headline earnings per share.

Not only did profitability recover, the share price also posted a recovery since its 50% drop at the  beginning of 2020. After falling from around R166 to only R84 when the world was in the midst of an unknown virus and SA banks agreed to suspend dividends in return for Reserve Bank support, it has recovered to comfortably above R135.

It is noticeable that different consensus views of analysts – aggregated by different investment platforms – rate Standard Bank as a buy. The price/earnings ratio of 10.6 times, based on the latest results, suggests that investors are confident that recovery will continue.

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