Standard Bank Group Limited · JSE:SBK
Standard Bank — FY2006 Earnings Presentation
70 slides from Standard Bank's earnings presentation, 2007
Slide 1: 2006 annual financial results presentation
2006 annual financial results presentation
Slide 2: Financial highlights
Financial highlights Dec 2006 % change Dec 2005 HEPS (cents) 796.4 20 666.0 Diluted HEPS (cents) 783.7 20 654.5 DPS (cents) 320.0 20 267.0 NAV (cents) 3 579.0 26 2 830.0 ROE (%) 25.2 25.2 Credit loss ratio (%) 0.67 0.40 Cost-to-income (%) 53.5 * 56.1 * Excluding MasterCard capital profit 53.8% Finan
Slide 3: Group income statement highlights
Group income statement highlights Dec 2006 % Dec 2005 Rm change Rm Net interest income 17 001 27 13 357 Non-interest revenue 19 712 23 15 966 Total income 36 713 25 29 323 Credit impairment charges 2 733 > 100 1 207 Operating expenses 19 652 20 16 441 Normalised headline earnings 10 818 20 9 013 Ban
Slide 4: Group headline earnings per share
Group headline earnings per share 900 Ç 20% 800 796 700 Ç 19% 600 Ç 19% 666 500 Ç 19% 558 Ç 18% 471 400 Ç 18% Ç 25% 396 300 335 283 200 100 0 cents 2000 2001 2002 2003 2004 2005 2006 Headline EPS 4
Slide 5: Group dividends per share
Group dividends per share 350 4.0 3.3 3.3 3.5 300 3.2 3.1 3.0 250 2.5 2.5 2.5 2.5 200 2.0 176.0 150 145.0 1.5 144.0 100 122.0 1.0 109.5 181.0 50 74.0 90.0 0.5 63.0 50.5 34.0 41.5 22.0 28.0 0 0.0 cents 2000 2001 2002 2003 2004 2005 2006 times DPS 1st half DPS 2nd half Dividend cover 5
Slide 6: Group return on equity
Group return on equity 4 000 30 25.2 25.2 3 500 23.7 22.4 22.6 25 3 000 19.8 20.1 20.3 17.8 20 2 500 17.0 14.8 2 000 13.4 15 12.0 12.6 1 500 10 1 000 5 500 1 397 1 939 1 957 2 154 2 464 2 830 3 579 0 0 cents 2000 2001 2002 2003 2004 2005 2006 % NAV per share ROE Ave cost of equity 6
Slide 7: Business unit review
Business unit review Headline Headline earnings Dec 2006 ROE earnings growth Rm % % Personal & Business Banking 4 828 24 31.7 Corporate & Investment Banking 5 033 20 27.7 Central and other 114 (65) Banking activities 9 975 19 25.2 Investment Management & Life Insurance 843 36 25.1 Standard Bank Grou
Slide 8: Headline earnings mix by major business unit
Headline earnings mix by major business unit 8 Personal & Business Banking 1 (2005: 43%) Corporate & Investment Banking (2005: 46%) 45 Central and other (2005: 4%) 46 Investment Management & Life Insurance (2005: 7%) 8
Slide 9: NII on interest earning assets
NII on interest earning assets 20 000 Ç 27% 18 000 17 705 16 000 14 000 13 970 12 000 10 000 2005 volume lending funding endowment prudential other treasury 2006 Rm effect requirements and banking activities 9
Slide 10: Margin on interest earning assets
Margin on interest earning assets Banking activities % Restated margin on interest earning assets for 2005 3.94 NII related changes 0.08 Lending 0.05 Funding (0.08) Endowment effect of higher rates 0.14 Prudential requirements (0.06) Other treasury and banking activities 0.03 Balance sheet related c
Slide 11: Non-interest revenue
Non-interest revenue Dec 2006 % Dec 2005 Rm change Rm Fee and commission revenue 12 372 18 10 457 Trading revenue 4 852 30 3 721 Other revenue 2 488 39 1 788 Banking and other 819 89 433 Realised MasterCard profit 157 - Property related revenue 743 (5) 782 Insurance related 769 34 573 Total non-inte
Slide 12: Advances growth
Advances growth Dec 2006 % Dec 2005 Rbn change Rbn Personal & Business Banking 265 32 200 Corporate & Investment Banking 184 32 139 Central and other 4 3 Banking activities 453 32 342 12
Slide 13: Credit impairment charges
Credit impairment charges NPL charge PL charge Total charge Credit loss Dec 2006 Rm Rm Rm ratio % Personal & Business Banking 1 915 418 2 333 1.00 Corporate & Investment Banking 107 228 335 0.19 Central and other - 65 65 Banking activities 2 022 711 2 733 0.67 NPL charge PL charge Total charge Credi
Slide 14: Credit impairment trends
Credit impairment trends 3 000 2.0 2 500 1.5 2 000 1.06 1.07 0.99 1 500 0.90 1.0 0.67 1 000 0.43 0.40 0.5 500 0 0.0 Rm 2000 2001 2002 2003 2004 2005 2006 % Credit impairment charges on NPLs Credit impairment charges on PLs Credit loss ratio 14
Slide 15: Operating expenses
Operating expenses % z Investing in people Rm change - Increased talent pool Outside Africa Staff 11 001 17 - Additional credit collection and risk Personal & Business Banking 5 668 8 management staff in South Africa - Increased incentive provisioning given Corporate & Investment Banking 4 750 31 fi
Slide 16: Cost-to-income ratio
Cost-to-income ratio 30 64 25 62 20 60 15 58 10 56 5 54 59.0 57.8 57.4 56.3 57.5 56.1 53.5 0 52 % growth 2000 2001 2002 2003 2004 2005 2006 % ratio Cost-to-income ratio Income growth Cost growth 16
Slide 17: Capital adequacy
Capital adequacy Adjusted Dec 2006 % * Dec 2006 % Dec 2005 % Group Tier I 9.2 10.8 10.5 Tier II 3.8 3.8 3.4 Tier III 0.2 0.2 0.3 Total 13.2 14.8 14.2 * Excludes capital required for potential acquisitions (referred to later) and equity to be paid out in April for 2006 final dividend 17
Slide 18: Personal & Business Banking
Personal & Business Banking Peter Wharton-Hood
Slide 19: Personal & Business Banking
Personal & Business Banking z Headline earnings up 24% to R4 828m z Credit loss ratio 1.00% (2005: 0.71%) z ROE 31.7% (2005: 30.8%) z Total income growth 22% (2005: 18%) z Cost growth 13% (2005: 10%) z Cost-to-income ratio 55.2% (2005: 59.2%) % of group assets % of group headline earnings 28 45 55 7
Slide 20: Overview
Overview z Positive economic environment in all markets z Strong sales performance and asset growth z Positive reinforcement of service levels and cost controls z Well positioned to deal with changing environment z Appropriately organised to cope with new regulations z Disappointing increase in dome
Slide 21: Abridged income statement
Abridged income statement Dec 2006 % Dec 2005 Rm change Rm Net interest income 11 169 25 8 930 Non-interest revenue 10 223 18 8 645 Fee and commission revenue 9 426 17 8 085 Other revenue 797 42 560 Total income 21 392 22 17 575 Credit impairment charges 2 333 82 1 285 Operating expenses 11 805 13 1
Slide 22: Headline earnings contribution per product
Headline earnings contribution per product Dec 2006 % Dec 2005 Rm growth Rm Transaction products 2 527 25 2 017 Home Loans 908 35 673 Bancassurance 604 31 461 Card 565 9 519 Vehicle and asset finance 224 7 209 Personal & Business Banking 4 828 24 3 879 22
Slide 23: Retail market share in South Africa
Retail market share in South Africa 37 Card 36% (2005: 35%) 32 Home Loans adjusted for securitisation 29% 27 (2005: 28%) Deposits 27% (2005: 27%) 22 Vehicle and asset finance adjusted for securitisation 22% (2005: 21%) 17 2001 2002 2003 2004 2005 2006 % 23
Slide 24: Credit provisioning
Credit provisioning Credit loss ratio 2006 % * 2005 % * Home Loans 0.27 0.29 Vehicle and asset finance 1.09 0.78 Card 7.03 3.32 Other 1.56 1.41 Personal & Business Banking 1.00 0.71 * Includes provisions against both performing and non-performing loans 24
Slide 25: Early arrears in SBSA (special mention category)
Early arrears in SBSA (special mention category) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 % Home loans VAF Card Source: DI500 25
Slide 26: Credit risk management
Credit z Risk decisions implemented over past 36 months optimal for current and projected environment z Growth in selective quality segments maintained z Management of credit risk appetite continues to improve through: - Risk based pricing premiums - Clear risk threshold management - Significant reh
Slide 27: Secured lending: Home Loans
Secured lending: Home Loans z Sustained volume increases - Number of registrations up 23% - Value of registrations up 43% - Book increase of 36% z Originator strategy delivered healthy market share performance and acceptable ROE z Margin compression resulting from: - increased concession levels / co
Slide 28: Secured lending: Vehicle and asset finance
Secured lending: Vehicle and asset finance z Three years of turnaround effort starting to show results - Number of applications up 46% - Value of loans granted up 19% - Book increase of 18% (Motor 24%, Non motor 14%) z Margin benefited from revision in pricing policy z Approved applications not take
Slide 29: Unsecured lending: Card
Unsecured lending: Card z Strategy adopted in 2002 proving successful - Number of accounts up 21% to 2.3 million - Cardholder spend up 21% - Book increase of 42% z Market share maintained despite strong competition and increased qualifying credit criteria z Absolute return model proved as revenue gr
Slide 30: Unsecured lending: Other lending
Unsecured lending: Other lending z Continued focus on segmentation and sales - Number of accounts up 10% - Book increase of 18% z ABIL JV termination announced - Net after tax revenue from the JV moved from R119m to R67m - Our microlending proposition progressing well - Roll out in Q3 2007 will be c
Slide 31: Transaction and investment products
Transaction and investment products z Sustained sales focus yielded satisfactory volume increases - Number of transactional accounts up 9.5% - Fees and commissions up 12.8% z Savings and investment balances rose by 27% z Bundled product offerings recognised as most affordable in market place z Debit
Slide 32: Bancassurance
Bancassurance z Continued co-operation with Liberty and strong sales impetus produced good results z Overall headline earnings contribution improved by 31% z Life licence embedded business - Commission grew by 26% - Policy volumes up 22% - Customer base penetration from 36% to 37% z Complex products
Slide 33: Outlook for Personal & Business Banking in the rest of Africa
Outlook for Personal & Business Banking in the rest of Africa z Signs of consumer buoyancy and middle market credit demand starting to show z Successful aspects of past South African retailing strategies will be deployed where appropriate z First step – maintain momentum of improved service levels z
Slide 34: Personal & Business Banking South Africa
Personal & Business Banking South Africa Sim Tshabalala
Slide 35: Advances growth achieved in 2006
Advances growth achieved in 2006 Dec 2006 % Dec 2005 Rbn growth Rbn Home Loans 170 37 124 Vehicle and asset finance 49 23 40 Card 17 42 12 Other 32 23 26 Personal & Business Banking 268 32 202 35
Slide 36: The outlook for our customers
The outlook for our customers z Debt to income ratio - Total debt (capital amount) as a % of income - At historically high levels – 73% - Still low relative to comparable markets z Debt repayment to income ratio - Interest and capital repayments as a % of income - Better measure of affordability - S
Slide 37: Secured lending portfolios
Secured lending portfolios z Middle income house demand and price trends set to continue z Co-ordinated branch based and mortgage originator strategies will prevail z Concession levels will tighten leading to improving margins z Low income housing strategy progressing well under the circumstances bu
Slide 38: Unsecured lending portfolios
Unsecured lending portfolios z 2007 will be a watershed year for the industry and Standard Bank z New regulatory pronouncements take effect 1 June with consequences for business origination and customer debt management z Card lending - Recent competitor actions have highlighted that decision to tigh
Slide 39: Transactions
Transactions z Expect to see continued strong economic activity - Growth of GDP plus inflation z Growth has been ahead of this as a result of sales and retention strategies z Growth not driven by price, but rather by volumes z Savings rates expected to remain low - Introduction of innovative savings
Slide 40: Bancassurance, Joint Ventures and Alliances
Bancassurance, Joint Ventures and Alliances z Co-operation with Liberty will be taken to new levels z Emphasis on bancassurance and consolidation of our insurance and wealth offerings will take place z Outlook in joint ventures space, for RCS and SA Home Loans in particular, look promising z Our MTN
Slide 41: Outlook for Personal & Business Banking in South Africa
Outlook for Personal & Business Banking in South Africa z Environment remains challenging - Increasing consumerism - Competition from non traditionals - Crime - Agricultural sector z Continuing rapid change in regulations anticipated - National Credit Act - FICA and FAIS - Dedicated Banks and the Co
Slide 42: Corporate & Investment Banking
Corporate & Investment Banking Ben Kruger
Slide 43: Corporate & Investment Banking
Corporate & Investment Banking z Headline earnings up 20% to R5 033m z Credit loss ratio 0.19% (2005: (0.06%)) z ROE 27.7% (2005: 27.2%) z Cost-to-income ratio 53.1% (2005: 53.7%) % of group assets % of group earnings 46 50 50 54 Corporate & Investment Banking Rest of group 43
Slide 44: Overview
Overview z Maintained momentum in South Africa and progressing well on transforming business Outside Africa z Strong revenue and asset growth across all business units z Improvements in management teams in all areas z Improved scale of operations and regional activities z Making progress in infrastr
Slide 45: Abridged income statement
Abridged income statement Dec 2006 % Dec 2005 Rm change Rm Net interest income 5 116 29 3 959 Non-interest revenue 9 418 30 7 225 Fee and commission revenue 2 998 25 2 407 Trading revenue 4 945 33 3 724 Other revenue 1 475 35 1 094 Total income 14 534 30 11 184 Credit impairment charges 335 > 100 (7
Slide 46: Income contribution
Income contribution 100 27 26 31 31 31 80 60 33 35 34 33 34 40 20 40 39 35 36 35 0 2002 2003 2004 2005 2006 % Net interest income Trading revenue Fees and other revenue 46
Slide 47: Global Markets
Global Markets z Total income R5.9bn, up 27%, headline earnings R1.9bn, up 17% z Strong trading performances across all geographies - Increased income from foreign exchange trading in SA and Africa - Revenues generated Outside Africa driven by higher volumes, customer led activity in the rates busin
Slide 48: Banking and Trade Finance
Banking and Trade Finance z Income R5.9bn, up 23%, headline earnings R1.6bn, up 7% - Strong growth in term and commercial property lending - Noticeable increase in scale of transactions and revenue per client in our business Outside Africa - Higher revenues in custody business driven by buoyant equi
Slide 49: Investment Banking
Investment Banking z Income R2.7bn, up 59%, headline earnings R1.6bn, up 44% z Continued strong performance from corporate finance and acquisition and project finance z Good returns from property and equity investment portfolios z Increase in specialised finance revenues z Leveraging off track recor
Slide 50: Infrastructure
Infrastructure z Higher IT and development spend of R362m, in line with business growth and product roll out across geographies Outside Africa z CIB wide infrastructure investment programme, launched in 2006, facilitated the successful completion of over 50 major IT projects in 2006 z Good progress
Slide 51: Outlook and activities
Outlook and activities z Continue to focus on revenue generation across all business units as major driver during this phase of expansion z Continue to improve scale in regions and products z Continue strategic focus on key customers in targeted industries z Increase our range of investment banking
Slide 52: Outlook and activities cont.
Outlook and activities cont. z Continue to optimise capital usage z Complete IT and support infrastructure roll out z Maintain momentum in South African business and complete the transformation of business Outside Africa z Greater focus on African franchise and related business opportunities z Globa
Slide 53: Corporate & Investment Banking South Africa
Corporate & Investment Banking South Africa David Munro
Slide 54: Credit extension to corporates in the South African market
Credit extension to corporates in the South African market 800 700 600 500 400 300 200 100 0 Rbn 1991 1994 1997 2000 2003 2006 11.7% * 15.3% * 19.3% * z Corporate credit extension at the end of December 2006 stood at R687bn - Increase of 21% year-on-year - Compound annual growth rate of 14% pa since
Slide 55: Growth in the corporate sector in South Africa
Growth in the corporate sector in South Africa z Corporate credit growth within the South African market as a whole has increased 21% year-on-year for 2006 z Contributing factors - ASGISA, 2010 & the focus on infrastructure development - GDP growth in excess of 4.5% - Consumer confidence - Business
Slide 56: Corporate loans and advances
Corporate & Investment Banking South Africa Corporate loans and advances 120 Ç 28% 100 Ç 42% 80 Ç 12% 60 Ç 14% Ç 5% 40 20 0 Rbn 2002 2003 2004 2005 2006 z Corporate loans and advances growth in CIB SA increased 28% year-on-year and displayed a compound growth of 36% pa since 2004 z Corporate credit
Slide 57: Lending growth net of distribution
Corporate & Investment Banking South Africa Lending growth net of distribution Loan and advances growth 2006 2005 Total 28% 26% Vanilla 21% 41% Complex lending 40% 7% z Industry sector growth within CIB SA: - Manufacturing (17%) - Construction (21%) - Real estate & business services (27%) - Media &
Slide 58: Other indications of growth
Corporate & Investment Banking South Africa Other indications of growth z Custody transactional volumes up 25% z Assets under custody up 33% z Foreign exchange daily average turnover up 17% z Commodities trading turnover up 37% z Transactional banking values up 22% z Corporate finance advisory deal
Slide 59: Outlook
Outlook z Optimistic about the future given the alignment with key drivers of the past z Opportunities still to be capitalised upon are: - ASGISA related fixed capital investment - Foreign direct investment - Black economic empowerment - Property sector growth - Advent of private equity 59
Slide 60: Investment Management & Life Insurance
WU Standard Bank Jacko Maree
Slide 61: Investment Management & Life Insurance
Investment Management & Life Insurance z Liberty Life normalised headline earnings up 34% to R2 589m z Liberty Life embedded value up 14% to R21.9bn (net of R1bn capital reduction) z Liberty Life ROEV 22.4% (2005: 20.1%) z Investment Management & Life Insurance headline earnings contribution to Stan
Slide 62: Liberty Life Headline earnings
Liberty Life Headline earnings Dec 2006 % Dec 2005 Rm change Rm Operating profit from insurance operations 1 395 48 942 Stanlib earnings* 133 24 107 Net profit from shareholders’ investments 268 (11) 301 Shareholders’ investment surplus (realised and unrealised) 705 44 491 Dividends on BEE preferenc
Slide 63: Key issues in 2006
Key issues in 2006 z Structural shift in savings dampens new business, but positive for Stanlib z Significant overall service and efficiency improvements achieved z Management expenses flat on previous year z Moving from inward to growth focus z Stanlib acquisition first building block in wealth com
Slide 64: Outlook for Investment Management & Life Insurance
Outlook for Investment Management & Life Insurance z Industry - Continue to engage with policymakers and stakeholders on the future z Sales - Build on work done in 2006 - Leverage new marketing and distribution structure - Drive bancassurance - Build alternative distribution models including Africa
Slide 65: Acquisitions: BankBoston Argentina
Acquisitions BankBoston Argentina z Formal approval process complete with transaction closing 1 April 2007 z Process of asset and liability transfer on track z Customer research well advanced and re-branding logistics complete z Total assets to be acquired US$2bn z Capital invested US$110m (existing
Slide 66: Potential acquisitions
Potential acquisitions z Nigeria - Agreement in principle to merge IBTC Chartered and Standard Bank Nigeria - Standard Bank will hold 50.1% in merged entity - Total capital to be invested will be US$525m (existing investment approximately US$225m) z Turkey - Agreed in principle to acquire investment
Slide 67: Financial Sector Charter in SA – selected statistics
Financial Sector Charter in SA – selected statistics Target 2008 Actual 2006 Actual 2005 Human resources development Black management % 44 37 Access to financial services Mzansi accounts # 652 179 439 240 322 148 Origination Affordable housing Rm 13 500 7 665 5 585 BSME Rm 3 300 3 250 2 535 BAgricul
Slide 68: Financial objectives remain
Financial objectives remain 2007 Medium term objective objective Normalised ROE 24.0% 22.5% Normalised growth in headline earnings per share CPIX + 10% CPIX + 10% Credit loss ratio 0.75% 1.00% Continuous Cost-to-income ratio 53.5% improvement CPIX is forecast to be 5.6% in 2007 68
Slide 69: Outlook
Outlook z Personal & Business Banking - Well positioned to benefit from continued consumer and small business growth in South Africa, albeit at a slower rate than in past three years - Good foundation has been laid to benefit from appropriate product roll out in Africa z Corporate & Investment Banki
Slide 70: WU Standard Bank
WU Standard Bank