- Earnings from continuing operations climb 8% on lending gains
- Stock registers biggest gain since 2009; closes at year high
Standard Bank Group Ltd. rose the most in more than seven years after first-half profit from continuing operations at Africa’s largest lender by assets climbed, boosted by higher interest rates in its home market that lifted income.
The stock gained 7.3 percent to 153 rand by the close in Johannesburg on Thursday, the highest in about a year. Earnings from continuing operations before one-time items increased to 10.9 billion rand ($820 million) from 10.2 billion rand a year earlier, Standard Bank said in a statement. The lender raised the dividend 12 percent to 3.40 rand.
The company achieved “excellent top line growth” as lending margins widened, said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town. Trading income was “strong,” while the dividend increase was “pleasing,” he said.
Standard Bank’s South African business overcame an economy that contracted in the first quarter as interest rates at their highest levels in six years lifted the profit it makes from charges on loans. Income growth from the company’s 19 units on the rest of the continent accelerated from a year earlier, boosted by gains at its credit-card unit and corporate and investment banking that offset losses in its fledgling vehicle and asset finance division.
Net income in the six months through June declined to 10.8 billion rand from 13.2 billion rand a year earlier after the company recorded one-time gains of 2.8 billion rand in 2015, mainly related to the sale of a stake in its U.K. business, that weren’t repeated. Earnings per share excluding one-time items rose 5 percent to 6.80 rand, beating the 6.56 rand per share median estimate of three analysts surveyed by Bloomberg.
South Africa’s economy is forecast not to expand at all this year as the central bank grapples with having to bring inflation back below its target range. This has put pressure on consumers and caused credit-impairment charges at Standard Bank to increase 16 percent in the first half.
Return on equity dropped to 14.4 percent from 15.1 percent as challenges started mounting from the rest of sub-Saharan Africa, where the International Monetary Fund forecasts growth will slow to 3 percent in 2016. In Nigeria, where Standard Bank is one of the biggest lenders, the devaluation of the naira and the decline in oil prices have pushed the economy to the brink of a recession.
“Concerns relate to credit losses in the corporate and investment banking division, particularly in West Africa where conditions are tough,” said Neelash Hansjee, a banks analyst at Old Mutual’s investment-management unit. “Personal and business banking credit losses seemed relatively well contained.”
While Standard Bank has increased provisions to guard against any deterioration in loan quality with South African consumers coming under more pressure, retail bad debts may start to rise in the fourth quarter of 2016, or first quarter of next year, Ben Kruger, co-chief executive officer of Standard Bank, said by phone. Increases in food inflation and a rise in the price of gasoline may hurt consumers, he said.
The lender is focused on growth in sub-Saharan Africa and doesn’t plan to make acquisitions in the region unless they meet the right price and risk standards, co-CEO Sim Tshabalala said in a Bloomberg TV interview.
“We intend to climb into our target range of between 15 percent and 18 percent return on equity by driving the continued generation of revenue and managing our costs, allocation of resources and in particular capital with a large measure of discipline,” he said.