The big four full-service banks compared

An analysis of results for the first six months of 2018.
In terms of advances (loans to customers), Absa Group and FirstRand reported growth rates more than double those of Nedbank and Standard Bank. Picture: Waldo Sweigers, Bloomberg

The results of the country’s four full-service banks to the end of June paint a clear picture of an economy that’s barely growing. Excluding the impact of associate income, growth in headline earnings per share (Heps) for all four was in the single digits.

Nedbank was boosted by a turnaround at Ecobank Transnational Incorporated (ETI) in the six months, without which diluted Heps growth would’ve been 1.4%. FirstRand was boosted by the inclusion of three months of profits from Aldermore in the UK, which it acquired on April 1. Given that the comparison below uses second-half figures for FirstRand to provide a more accurate comparison for the first six months of calendar 2018, this contribution had an outsized impact. “Normalised” earnings, excluding Aldermore, were up 7% in the 12 months to end-June.

In terms of dividend growth, Nedbank’s payout leads the four. FirstRand’s dividend for the year was up 8%, but the final dividend (for ‘H2’) is up just under 7%. Absa Group (neé Barclays Africa) barely grew its dividend payout in the six months.

When looking at return on equity (ROE), FirstRand’s superiority is maintained with a figure of 23% for the year to end-June. However, this is the lowest in five years and has been on a downward trajectory from the recent peak of 24.7% in FY2015. Excluding Aldermore, ROE was 22.8% for the year. The group says the UK bank “enhanced group earnings and ROE”.

Nedbank makes broad use of an ROE figure excluding goodwill of 18.4% for H1. The bank says its 2020 target for this measure is above or equal to 18%. The group’s ROE without adjustments is 17.2%, substantially higher than the 14% a year prior. Absa Group’s ROE has hovered between 16.1% and 17% for the past eight reporting periods, while Standard Bank’s has trended upward from a low of 12.7% in H1 2014 to this year’s 16.8%.

 

Absa1

FirstRand2

Nedbank

Standard Bank

Headline earnings per share

952.2c

248.5c3

1 387c

794c

Change

3%

17.11%3

26.3%

5%

Dividend per share

490c

145c3

695c

430c

Change

3%

6.62%3

13.9%

8%

Net asset value per share

11 683c

2 157.9c

16 956c

9 768c

   

 

 

 

Return on equity

16.9%

23%

17.2%

16.8%

Return on risk-weighted assets

2.2%

3.15%

2.48%

2.9%

Credit loss ratio

0.83%

0.84%

0.53%

0.7%

   

 

 

 

Net loans and advances (banking) (R’000)

783 116

957 8104

689 377

955 912

Change

7%

7%

2.7%

3%

Deposits (R’000)

714 491

1 094 2704

801 165

1 174 643

Change

3%

11%

5%

4%

   

 

 

 

Net interest income (change)

2%

14.1%3

3.4%

1%

Non-interest revenue (change)

4%

3.7%3

4.3%

8%

Expense growth

4%

9.3%3

2.7%

6%

   

 

 

 

Net interest margin

4.75%

5.3%

3.67%

4.5%

Non-interest revenue to total income (diversity ratio)

42.8%

45%

46.6%

43%

Non-interest revenue to operating expenses

76.1%

86.04%

82.9%

75.43%

Cost-to-income ratio

56.2%

51.2%

55.8%

57.1%

Jaws ratio  (income growth rate minus expenses growth rate)

-1%

-0.4%

6.5%

-1.8%

1 Normalised results (excluding Barclays separation)

2 Includes Aldermore, except items marked ‘4’ (see below)

3 FirstRand reports FY results to end June. This is the calculated result for H2.

4 Excludes Aldermore

In terms of advances growth (loans to customers), Absa Group and FirstRand reported growth rates of 7%, more than double that of Nedbank and Standard Bank. Deposit growth at FirstRand, excluding the impact of Aldermore, was up 11%. Include the UK operation, and the figure jumps to 29%. Growth in customer deposits at the other three banks was in the low-to-mid single-digit range.

Net interest income (NII) growth among three of the four was relatively pedestrian in the six months. Again, FirstRand’s numbers are distorted by the inclusion of Aldermore. Excluding that three-month contribution, group NII was up 7% for the year (an acceleration from the 6% in H1). Standard Bank’s NII growth was practically flat, “driven by low loan growth and declining net interest margin (NIM). NIM declined from 460 bps [basis points] to 450 bps as the impact of declines in interest rates in SA and various African countries and pressure on pricing was partially offset by retail deposits growing faster than wholesale, the Africa Regions’ portfolio growing faster than SA and lower funding costs.”

Growth in non-interest revenue (NIR), earned through fees and commissions, has slowed at most banks. At Standard Bank, NIR was up 8% – around double that of the other three for the six months. It says: “the largest component, net fee and commission revenue, [was] up 6%. Trading revenue recovered to grow at 12% and other revenue by 9%.”

FirstRand’s published figure for NIR growth is 7% for the year. This includes 10% growth in H1 (when it passes its increases in bank charges) and therefore distorts the growth rate in the second-half (calculated at around 4%).

Out of the four, Nedbank has had the tightest grip on costs, with expense growth of just 2.7% in the six months (adjusting for IFRS 9 and 15, the figure is 3.6%). It and Absa Group both saw expense growth below inflation for the period. FirstRand says that excluding Aldermore, full-year “operating cost growth (7%) was slightly lower than the first half of the year, but continues to trend above inflation due to ongoing investment in insurance and asset management activities, platforms to extract further efficiencies and the build-out of the group’s footprint in the rest of Africa”.

Standard Bank Group’s cost-to-income ratio increased by a full percentage point year-on-year, to 57.1%, with Absa Group’s up 70 basis points to 56.2% “as sub-inflationary cost growth of 4% was 1% higher than income growth”. Nedbank’s cost-to-income (“efficiency”) ratio improved dramatically to 55.8% from 59.3% thanks to the ETI turnaround. When considering managed operations (excluding ETI), Nedbank’s cost-to-income ratio improved from 56.5% to 56%. Its target for the group is to get this to the 53% level by 2020. FirstRand’s cost-to-income ratio for the full year was up marginally from 51% in 2017.

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