Standard Bank Group Limited · JSE:SBK
Standard Bank — H1 2002 Earnings Presentation
50 slides from Standard Bank's earnings presentation, 2002
Slide 1: Financial results presentation for the six months ended 30 June 2002
Financial results presentation for the six months ended 30 June 2002
Slide 2: Presentation structure
Presentation structure • Financial highlights Simon Ridley • Business unit review Jacko Maree 2
Slide 3: Key financial statistics
Key financial statistics Standard Bank Group June % June ’02 change ’01 Headline earnings Rm 2 402 19 2 010 Headline EPS cents 181 18 153 Cost-to-income ratio % 57.5 57.7 Headline ROE % 19 21 NAV per share cents 1 929 31 1 477 Total assets Rbn 416 34 310 3
Slide 4: Income statement highlights
Income statement highlights Standard Bank Group June ’02 % June ’01 Rm change Rm Net interest income 4 817 25 3 867 Non-interest revenue 5 287 27 4 152 Total income 10 104 26 8 019 Provision for credit losses (1 049) 40 (747) Operating expenses (5 813) 26 (4 629) Operating profit 3 242 23 2 643 Taxa
Slide 5: Headline earnings per business unit
Headline earnings per business unit Commercial Banking SCMB 11% 23% (10%) (23%) Retail Banking 31% International (30%) Operations 13% (13%) Properties Liberty Stanbic Africa STANLIB 3% 8% 9% 2% (3%) (2%) (10%) (9%) ( ) June ‘01 5
Slide 6: Headline earnings breakdown
Headline earnings breakdown June ’02 % June ’01 Rm change Rm Domestic operations 1 638 23 1 334 Retail Banking 761 22 625 SCMB 580 23 471 Commercial Banking 276 26 219 Properties 62 7 58 Central services (41) (39) International Operations 336 23 274 Stanbic Africa 231 26 183 STANLIB 41 3 40 Central
Slide 7: Translation effect
Translation effect • Accounting treatment – movements taken to reserves as in previous years • Impact for the 6 months, R1.5bn reversal • Accumulated translation reserve R4.1bn at 30 June 2002 • Comparative exchange rates GBP June ‘02 Dec ‘01 June ‘01 Period end 15.69 17.45 11.33 • Headline ROE dilu
Slide 8: Summarised balance sheet
Summarised balance sheet June ’02 % June ’01 Rbn change Rbn Cash and short-term funds 60.9 104 29.8 Advances 162.0 18 137.8 Other assets 104.2 62 64.5 Total banking assets 327.1 41 232.1 Liberty 89.3 14 78.1 Total assets 416.4 34 310.2 Shareholders’ funds 25.6 31 19.5 Minorities 6.4 22 5.3 Deposits
Slide 9: Headline return on equity
Headline return on equity 30000 25% 25000 20% 20000 15% Rm 15000 10% 10000 5% 5000 0 0% 1997 1998 1999 2000 2001 HY 2002 Shareholders' funds ROE 9
Slide 10: Returns on capital
Returns on capital June ’02 June ’01 ROE ROE % % Domestic operations 27 26 Retail Banking 28 25 SCMB 28 30 Commercial Banking 32 30 Properties 19 20 International Operations (GBP) 10 12 Stanbic Africa 24 33 Central Funding, Liberty, STANLIB 9 14 Standard Bank Group 19 21 10
Slide 11: Funds margin analysis
Funds margin analysis Change in asset mix 4.5 • Domestic (30bp) 4.0 - Competitive pricing 3.5 - Currency impact 3.0 - Growth in lower margin 2.5 assets % 2.0 + Deposit growth 1.5 + Endowment 1.0 • International (14bp) Standard Bank Group 0.5 - Increase in lower margin 0.0 assets 1997 1998 1999 2000
Slide 12: Non-interest revenue
Non-interest revenue • Fees and commissions +23% 100% 7 8 • Repricing • Card – increased loyalty fees 80% 29 25 and merchant sales • Online banking volumes +30% 60% • International – mining finance +45% 40% • Africa – acquisitions and 64 67 repricing +89% 20% • Trading income +48% • International –
Slide 13: Provision for credit losses
Provision for credit losses 1200 • Domestic +11% • Specific provisions +6%, 1000 improved credit management 800 109% • Regulatory requirements, GDP +64% 21% Rm 600 • International >100% (+£9m) 400 • Tough market conditions • Higher GDP charge +£1.3m 200 • Stanbic Africa +51% 0 • Zimbabwe, Malawi, DR
Slide 14: Non-performing loans
Non-performing loans % of average advances June Dec June Dec • Gross NPL growth ‘02 ‘01 ‘02 ‘01 covered by higher Rm Rm % % security and Gross NPLs 5 079 4 758 3.2 3.3 provisions Net NPLs before 92 127 0.1 0.1 GDP • Total provisions Net NPLs after (1 537) (1 364) (0.9) (1.0) well in excess of GDP re
Slide 15: Operating expenses +26%
Operating expenses +26% • Domestic operations +11% 6,000 • Pension fund provision 5,000 • IT costs carefully managed 2,576 (largely expensed) 20% 4,000 • Planned headcount growth 2,154 Rm 3,000 • International Operations +76% • Currency effect 2,000 31% 3,237 • Headcount growth, primarily 1,000 2,47
Slide 16: Capitalisation of IT development costs
Capitalisation of IT development costs • Generally IT development costs recognised as an expense when incurred • Only certain long-term strategic projects capitalised • 5 projects at present • Net book value of R253m at June 2002 • R24m development costs capitalised this period • 5 year depreciation
Slide 17: Operating cost growth reconciliation
Operating cost growth reconciliation 7.2% 5.6% 25.6% 1.6% 11.2% June '02 Currency effect Acquisitions Pension fund June '02 Reported provision Comparable 17
Slide 18: Business units' cost-to-income ratio
Business units’ cost-to-income ratio Domestic improvement 1.8% June ’02 June ’01 % % Domestic operations 55.4 57.2 Retail Banking 62.5 64.2 SCMB 50.7 52.5 Commercial Banking 39.3 40.0 Properties 30.5 29.3 International Operations 65.2 62.8 Stanbic Africa 58.9 54.4 STANLIB 65.8 60.2 Standard Bank ope
Slide 19: Capital adequacy
Capital adequacy 16 • Group capital 14 12 adequacy 14.8% 10 % 8 • Blended regulatory 6 requirement of 10.8% 4 2 • Tertiary subordinated 0 debt issue 1997 1998 1999 2000 2001 HY 2002 Primary capital Secondary capital Tertiary capital Required capital 19
Slide 20: Retail Banking
Retail Banking Standard Bank Group
Slide 21: Retail Banking results highlights
Retail Banking Results highlights • Headline earnings up 22% • Cost-to-income ratio 62.5% (64.2%) • ROE 28% • Infrastructural investments made • Customer service drive • Invested in our staff 21
Slide 22: Retail Banking: Home loans
Retail Banking Home loans • Record grant and registration levels • Satisfactory growth in book R40.7bn (R34.6bn) • Market share increased to 16.3% from 15.5% • 50% of business generated by originators • Improvement in turnaround times and registration process 22
Slide 23: Retail Banking: Card business
Retail Banking Card business • Strong sales focus utilising the network – Number of accounts +7% – Debit balances +17% – Merchant sales growth +17% – Growth in net interest income and other income +20% • Improved quality of book – Arrears improved to 4.09% from 6.08% • Decision to insource card proc
Slide 24: Retail Banking: Banking products
Retail Banking Banking products • Lending products – Reduced demand for credit in Agriculture and SME – Margin pressure - lagged adjustment in Usury Act rate – Improved book quality and collections, NPLs R635m from R884m – Success in personal loans pre-approved campaigns • Transactional banking – In
Slide 25: Retail Banking: Bancassurance
Retail Banking Bancassurance • Embedded products % Penetration 2002 2001 Home Loan Protection 11.6 8.7 Personal Loan Protection 26.9 22.3 Funeral plan 14.6 11.2 • Complex products – Standard Bank Financial Consultancy (SBFC) is increasing distribution capacity – First year commission 13% up 25
Slide 26: SCMB
SCMB Standard Bank Group
Slide 27: SCMB results highlights
SCMB Results highlights • Headline earnings up 23% • Operating costs up 15% • Cost-to-income ratio 50.7% (52.5%) • ROE 28% • Tier III capital raised to support trading desks 27
Slide 28: SCMB results highlights
SCMB Results highlights • All business areas improving performance and profitable • Lower volatility in earnings, more mature risk management • Market share positions maintained • Improved client focus • Aggressively managing transformation 28
Slide 29: SCMB revenue per business unit
SCMB Revenue per business unit 4% 13% (4%) 23% (13%) (23%) 5% (6%) 22% (21%) 33% (33%) Treasury Foreign Banking Corporate and Investment Banking Custody Project and structured finance Electronic Banking ( ) June ‘01 29
Slide 30: Commercial Banking
Commercial Banking Standard Bank Group
Slide 31: Commercial Banking results highlights
Commercial Banking Results highlights • Headline earnings increased 26% • Cost-to-income ratio improvement continues 39.3% (40.0%) • ROE 32% • Ongoing focus on quality assets 31
Slide 32: Commercial Banking key growth statistics
Commercial Banking Key growth statistics Commercial lending -10.9% deposits +33.8% Stannic turnover +29.7% market share +0.2% Transactional banking paper -13.6% electronic +21.9% 32
Slide 33: Stanbic Africa
Stanbic Africa Standard Bank Group
Slide 34: Stanbic Africa results highlights
Stanbic Africa Results highlights • Headline earnings 26% up • Cost-to-income ratio 58.9% (54.4%) • ROE 24% • Further diversification of earnings • Zimbabwe excluded from profit through the provision line (R6m) • Organic growth of 25% (excluding Zimbabwe) • Acquisitions added R37m to earnings 34
Slide 35: Stanbic Africa results highlights
Stanbic Africa Results highlights • Most African currencies strengthened against the Rand • Except for CMA countries, margins were under pressure • Ongoing review of NPLs resulting in additional provisions • Increased contribution by up-skilled treasury • Operating costs impacted by acquisitions and
Slide 36: Stanbic Africa other highlights
Stanbic Africa Other highlights • Kenya set to break-even with net recovery in provisions • Quality of loan portfolio in Tanzania improving • Upgrade of banking technology on track • Integration of acquisitions progressing well • Close relationship with group centres of excellence 36
Slide 37: International Operations
International Operations Standard Bank Group
Slide 38: International Operations results highlights
International Operations Results highlights • Increasingly difficult market conditions • Earnings 23% up in Rand, 11% down in GBP • GBP revenue growth of 23% offset by 28% operating cost increase (headcount growth 22%, primarily in Asia and private banking) • Credit provisioning charge of £14.3m (20
Slide 39: International Operations key business areas
International Operations Key business areas • Resource banking – 47% GBP increase from precious and base metals – Positive contribution from energy activities • Debt capital markets – Decreased contribution from customer businesses – Proprietary trading +35% • Private Banking – Banking and trust adm
Slide 40: International Operations balance sheet
International Operations Balance sheet • Total assets up £1.2bn (22%) on 31 Dec 2001 • Major asset increases include £550m collateral management, £170m customer leverage (debt capital markets), £120m lending activities • 70% of exposures rated as investment grade • Cash invested in corporate CDO’s $
Slide 41: International Operations balance sheet diversification
International Operations Balance sheet diversification Exposures by geographic region Total Banks/ Corporate Sovereign % % % Europe 37 21 16 North America 22 10 12 Asia 15 8 7 Sub-Saharan Africa 10 5 5 Eastern Europe 6 3 3 South America 5 4 1 Middle East 5 3 2 Total 100 54 46 41
Slide 42: International Operations balance sheet liquidity
International Operations Balance sheet liquidity • Of total assets, 45% saleable within 8 days; 68% within one month • 70% of total assets are marked-to-market or cash • Funding sources: 21% corporate deposits, 21% retail deposits, 6% group, 28% bank deposits, 24% repos 42
Slide 43: International Operations provisioning adequacy
International Operations Provisioning adequacy • Specific provisioning charge of £10.3m (2001, £2.6m) reflects extremely tough credit markets • GDP charge £4.0m (2001, £2.7m). Balance sheet GDP of £27.9m (31 Dec 2001, £24.2m) • Liquidity provisions against trading book valuations and structural prov
Slide 44: STANLIB
So TANLIB Standard Bank Group
Slide 45: STANLIB update on progress
STANLIB Update on progress • Strong relative investment performance • Headcount down 79 • Products being rationalised – best of breed retained • Systems integration commenced • Office move early December • Ahead of plan – merger costs in second half 45
Slide 46: Liberty Group
Liberty Group Standard Bank Group
Slide 47: Liberty financial highlights
Liberty financial highlights Good operational performance • Indexed new business up 22% • New business up 18% • New business margin of 18% • Significant gains in market share • Bancassurance new business up 81% to R1.2bn • Headline earnings per share down 5% • Net cash inflow from insurance operatio
Slide 48: Conclusion
Conclusion Standard Bank Group
Slide 49: Conclusion
Conclusion • Retail performing well, assisted by internal restructuring and relatively stable environment • SCMB and Commercial continue to exceed expectations • Stanbic Africa to build on diversified portfolio and strategic acquisitions • STANLIB on track • Liberty performance linked to equity mark
Slide 50: Standard Bank Group
Standard Bank Group