Standard Bank Sees Return on Equity Hurt by Slowing South Africa

  • Sovereign credit downgrade to junk would also impact returns
  • Lender works with government on measures to boost the economy

Standard Bank Group Ltd., Africa’s largest lender by assets, said return on equity will be hurt by South Africa’s sluggish economy and it’s collaborating with the government on ways to improve the country’s outlook.

Returns, which will also be depressed by slower growth in other African nations, will be knocked if South Africa’s sovereign credit rating is downgraded to junk status, the Johannesburg-based lender said in a statement on Thursday. The bank said that it’s maintaining its medium-term return on equity target of 15 percent to 18 percent, after the key metric rose to 15.3 percent in 2015 from 12.9 percent a year earlier.

South Africa’s growth slowed last year and the country is “flirting with stagnation, if not recession” in 2016, according to the World Bank, which cut the nation’s growth forecast for this year to 0.8 percent. Other African countries in which Standard Bank operates, such as Nigeria, have also struggled because of the rout in commodity prices.

Sim Tshabalala, joint chief executive officer of Standard Bank, is one of the co-conveners of a task group made up of South African business leaders who have met with Finance Minister Pravin Gordhan and President Jacob Zuma to come up with measures to boost the economy. Moody’s Investors Service cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December. Standard & Poor’s, which puts the nation’s debt one level below Moody’s, also changed its outlook to negative.

Standard Bank’s normalized net income climbed 34 percent in 2015 to 21.37 billion rand ($1.37 billion) from 15.93 billion rand a year earlier, according to a statement Thursday. Earnings per share excluding one-time items increased 27 percent to 13.59 rand, beating the 13.19 rand median estimate of 13 analysts surveyed by Bloomberg. The dividend rose 13 percent to 6.74 rand.

Asset Growth

Even as it faces a tough year ahead, the bank remains well capitalized and its 15 percent asset growth “was very pleasing,” said Adrian Cloete, a banks analyst at PSG Wealth, a Cape Town-based firm that manages more than 300 billion rand. Another positive was the decline in the bank’s credit-loss ratio to 0.87 percent from 1 percent, he said, adding that earnings beat his expectations.

The bank completed the sale of a 60 percent stake in its U.K. operations to Industrial and Commercial Bank of China Ltd. last year, helping boost profit as it partially exited its London business, which was making losses. Standard Bank is focused on tapping growth across Africa and has operations in 20 countries on the continent.

Standard Bank rose as much as 3.3 percent and was 2.8 percent higher at 118.16 rand as of 9:52 a.m. in Johannesburg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE